HB 


UC-NRLF 


UsBs 


A  Study  of  Price  Control  by  the 

United  States  Food 

Administration 


A  DISSERTATION 

SUBMITTED  TO  THE  FACULTY  OF  PHILOSOPHY 

OF  THE 

CATHOLIC  UNIVERSITY  OF  AMERICA 
IN  PARTIAL  FULFILLMENT  OF  ITS  REQUIREMENTS 

FOR  THE  DEGREE  OF 
DOCTOR  OF  PHILOSOPHY. 


BY 

REV.  JOSEPH  C.  HARTLEY,  O.  S.  A. 

OF  THE  PROVINCE  OF  ST.  THOMAS  OF  VILLANOVA, 

VILLANOVA,  PA. 

1922. 


A  Study  of  Price  Control  by  the 

United  States  Food 

Administration 


A  DISSERTATION 

SUBMITTED  TO  THE  FACULTY  OF  PHILOSOPHY 

OF  THE 

CATHOLIC  UNIVERSITY  OF  AMERICA 
IN  PARTIAL  FULFILLMENT  OF  ITS  REQUIREMENTS 

FOR  THE  DEGREE  OF 
DOCTOR  OF  PHILOSOPHY. 


BY 

REV.  JOSEPH  C.  HARTLEY,  O.  S.  A. 

OF  THE  PROVINCE  OF  ST.  THOMAS  OF  VILLANOVA, 

VILLANOVA,  PA. 

1922. 


TABLE  OF  CONTENTS. 

I  Preface    5 

II  Price  Control  and  Price-Fixing    , 7 

III  Beginnings  of  Government  Control 16 

IV  Control  of  Wheat,  Flour  and  Bread  34 

V  Control  of  Sugar 56 

VI  Control  of  Meat  and  Dairy  Products 75 

VII  Control  of  Canned  Goods  100 

VIII  Control  of  the  Unlicensed  Retailer 109 

IX  Conclusion    114 

X  Appendix — Early  Attempts  at  Price-Fixing.  .123 

XI  Bibliography    136 


478673 


PREFACE. 

The  United  States  Food  Administration,  during  its 
brief  war  time  existence  became  almost  an  international 
organization.  As  the  breakdown  of  European  food  pro- 
duction became  more  and  more  imminent,  ever  increas- 
ing dependence  was  placed  upon  American  markets. 
With  each  of  the  Allies  striving  to  secure  large  allot- 
ments of  foodstuffs  from  us,  the  necessity  of  some  or- 
ganization to  apportion  amounts  according  to  needs  be- 
came imperitive.  Never  before  was  there  greater  need 
of  handling  food  problems  from  an  international  view- 
point. Thus,  in  accordance  with  this  necessity  was  the 
United  States  Food  Administration  forced  to  adopt 
policies  of  wider  scope  than  those  whose  aim  was  the 
provision  of  national  needs. 

In  this  country,  the  Food  Administration's  influence 
was  everywhere  felt.  It  dealt  with  problems  that  arose 
unbidden,  but  which  affected  vitally  the  nation  at  large 
and  every  individual  who  composed  it.  The  worker  in 
the  factory,  the  man  in  the  office,  the  soldier  on  the 
battle-field;  producer,  manufacturer  and  consumer  all 
came  within  the  scope  of  its  jurisdiction  and  were  af- 
fected more  or  less  by  its  regulations  and  requirements. 
The  work  of  this  organization,  the  problems  that  it  had 
to  cope  with,  and  the  manner  in  which  they  were  solved, 
although  now  stripped  of  their  war-time  importance, 
have  their  lesson  to  teach. 

The  aim  of  this  study  is  to  present  an  historical  ac- 
count of  the  work  of  the  United  States  Food  Administra- 
tion from  an  economic  view-point.  No  attempt  is  made 
to  give  a  complete  account.  When  it  is  considered  that 
over  300  separate  commodities  came  under  control,  the 
size  of  such  a  task  can  be  appreciated.  Of  the  control  of 
many  of  these  commodities  scarcely  any  written  record 
exists.  The  real  work  of  the  Food  Administration  was 


6  Preface. 

centered  upon  a  few  basic  commodities.  Of  these  we 
have  made  a  detailed  study  in  this  work. 

Since  this  study  was  begun,  several  War  Industries 
Bulletins  have  appeared.  Special  mention  must  be  given 
to  Bulletin  No.  3,  entitled  "Government  Control  Over 
Prices,"  which  the  writer  has  used  frequently  as  a  guide 
in  following  the  thread  of  a  sometimes  hazy  narrative. 
Care  has  been  taken  to  examine  its  view-point  and  to 
supply  what  are,  perhaps,  intentional  omissions. 

In  the  appendix  will  be  found  a  brief  account  of  several 
of  the  most  important  attempts  to  fix  prices  in  times 
past.  It  is  hoped  that  this  material  will  be  of  value  be- 
cause of  the  comparison  it  affords  between  past  and  pre- 
sent experiences  with  governmental  control  over  prices. 

The  writer  wishes  to  express  his  deep  appreciation  for 
the  valuable  suggestions  and  the  timely  encouragement 
needed  in  completing  this  task  to  his  major  professor  Dr. 
Frank  O'Hara. 


CHAPTER  I. 


PRICE  CONTROL  AND  PRICE-FIXING. 


The  extension  of  governmental  supervision  over  many 
of  the  phases  of  private  initiative  has  brought  to  light  a 
number  of  terms  all  of  which  serve  to  indicate  the  gen- 
eral idea  of  control.  We  are  now  fairly  familiar  with 
such  terms  as  regulation,  supervision,  nationalization, 
rationing,  price-fixing  and '  price-control.  It  is  chiefly 
with  the  last  named  term  that  we  shall  deal  in  this  work. 

Control  is  a  word  of  wide  meaning.  In  general  it  im- 
plies a  check  or  restraint  placed  upon  a  weaker 
organism,  by  a  more  powerful  one.  As  exercised  by  the 
Government  in  an  economic  sense,  control  may  indicate 
any  degree  of  supervision  ranging  from  the  enforcement 
of  a  slight  regulation  to  the.  actual  handling  of  a  business 
itself.  If  some  effort  is  made  by  government  authority  to 
check  prices  from  increasing  abnormally,  such  an  effort 
might  be  termed  price  control. 

Our  government's  experience  with  prices  during  the 
war  was  largely  an  experience  of  price  control,  rather 
than  of  price  fixing.  Prices  are  fixed  when  an  expressed 
amount  of  a  commodity  and  no  less  must  sell  for  an  ex- 
pressed amount  of  money  and  no- more.  Many  of  the 
European  nations  adopted  this  direct  method  of  controll- 
ing prices;  the  United  States,  however,  in  deference  to 
the  traditional  freedom  of  economic  pursuit  expressed 
itself  at  the  outset  at  least,  as  opposed  to  a  system  of  di- 
rect price-fixing.  It  was  thought  much  more  could  be 
accomplished  by  enlisting  the  voluntary  cooperation  of 
producers,  manufacturers  and  consumers.  In  the  be- 
ginning of  our  war  time  experience  with  price  control, 
therefore  much  emphasis  was  placed  upon  the  patriotic 
appeal,  but  as  the  hand  of  the  government  agencies 
tightened  their  grip  upon  business  and  industry,  it  be- 

7 


8  Price  Control  and  Price-Fixing. 

came  evident  that  more  reliance  should  be  placed  upon 
punishments  and  penalties  and  less  upon  the  uncertain 
factor  of  voluntary  agreements.  With  this  change  in  the 
character  of  control,  the  Food  Administration  tended  to 
adopt  more  definite  measures  of  regulating  prices:  yet 
these  measures  never  reached  the  stage  of  direct  price- 
fixing. 

Rationing1  though  often  used  in  conjunction  with 
price-fixing  may  be  considered  apart  from  it.  In  fact,  a 
system  of  rationing  may  be  established  without  any  at- 
tempt to  fix  a  price.  Rationing  means  that  a  certain 
amount  of  a  commodity  is  alloted  to  an  individual,  a  fam- 
ily, or  a  group  during  a  definite  period  of  time.  In  this 
case,  the  government  is  more  concerned  with  the  distri- 
bution of  the  commodity  than  with  its  price.  The  entire 
supply  of  the  commodity  may  be  then  purchased  or  com- 
mandeered by  authority  to  be  distributed  according  to  a 
pro-rata  plan.  The  distribution  of  the  article  itself,  how- 
ever, may  be  made  through  the  ordinary  channels  of 
trade  such  as  brokers,  wholesalers  and  retailers.  While 
price-fixing  or  price-control  is  difficult  to  enforce,  a  sys- 
tem of  rationing  may  be  established  with  well-nigh  com- 
plete success.  With  its  hands  upon  the  total  available 
supply  of  a  commodity,  a  government  may  ration  its 
people  with  almost  the  same  ease  as  it  pays  off  its  em- 
ployees. Control  of  this  kind,  however,  presupposes, 
production.  The  main  difficulty  to  be  met  with  in  any 
system  of  control  is  with  production  itself. 

There  are  no  possible  means  of  making  a  man  produce 
if  he  does  not  wish  to.  Pains  and  punishments  may 
stimulate  to  some  degree,  but  fundamentally  the  indi- 
vidual is  free  to  produce  or  not  to  produce.  Patent  as 
this  truth  is,  many  governments  have  endeavored  to  es- 
tablish control  without  taking  it  into  consideration.  In 
the  end  failure  and  famine  have  resulted. 

Although  theoretically  control  can  be  established  with- 
out any  reference  to  price,  practically  the  price  element 

i  In  the  United  States  the  stage  of  rationing  was  never  fully 
reached ;  yet  some  attempt  was  made  to  ration  sugar,  and  flour. 


Price  Control  and  Price-Fixing.  9 

plays  a  large  role.  It  is  to  price  that  the  farmer  and  the 
manufacturer  pays  the  most  attention.  If  the  farmer  is 
assured  of  a  reasonable  price  for  his  produce,  and  the 
manufacturer  a  fair  margin  for  his  output,  production 
will  not  be  curtailed  and  rationing  the  consumer  becomes 
practical  as  far  as  production  is  concerned. 

A  government  may  extend  control  to  the  rationing  of 
its  manufacturers,  tradesmen  and  people.  When  the  de- 
mand for  necessities  greatly  exceeds  the  available  supply, 
distribution  of  these  necessities  is  limited  only  to  those 
who  can  afford  to  pay  excessive  prices. 

At  this  point  it  should  be  recalled  that  commodity 
usually  passes  through  three  main  stages.  It  is  pro- 
duced, then  manufactured  and  finally  distributed. 

The  producer  is  not  the  wholesaler  and  the  manufac- 
turer even  is  not  always  the  original  producer.  As  an 
example,  take  tinned  meat,  the  original  producer  of  the 
beef  is  the  farmer.  The  manufacturer  of  the  corned 
beef  or  potted  tongue  may  be  and  frequently  is,  both 
manufacturer  and  wholesaler.  To  a  certain  extent  he  is 
also  a  producer,  for  the  article  when  it  leaves  his  pack- 
ing establishment  differs  from  that  which  has  left  the 
farmer.  The  wholesaler,  on  the  other  hand,  very  rarely 
adds  to  or  alters  the  product  in  which  he  deals.  His 
function  is  to  buy  and  store  in  large  quantities  and  to 
provide  the  retailer  from  time  to  time  as  becomes  neces- 
sary. The  wholesaler  is,  in  effect,  the  agent  between  the 
producer  or  manufacturer  and  the  retailer.  The  retailer 
acts  as  a  distributor  to  the  consumer,  unless  his  place  is 
taken,  in  a  rationing  scheme  by  officials  of  the  Govern- 
ment. 

At  just  what  stage  in  the  productive  process  a  gov- 
ernment should  step  in  with  control  is  not  always  easy 
to  determine.  The  policy  adopted  will  depend  in  great 
measure  upon  the  need  for  state  interference,  the  ends 
to  be  sought  by  such  interference  and  the  attitude  of  the 
people.  When  there  is  urgent  need  for  conserving  food- 
stuffs, when  the  abuses  of  hoarding  and  profiteering  be- 
come widespread  and  when  public  opinion  demands  a 


10  Price  Control  and  Price-Fixing. 

remedy  a  government  will  frame  its  control  policy  to 
meet  the  evils  that  cause  most  suffering  and  hardship. 
Rationing,  which  is  always  the  last  resort,  may  be  ap- 
plied only  to  manufacturers  at  first,  and  then  to  consum- 
ers. As  the  evils  which  government  control  are  designed 
to  correct  are  not  confined  to  any  particular  stage  of 
production  or  class,  it  seems  to  have  greater  possibilities 
of  success  when  it  is  extended  over  the  entire  movement 
of  a  commodity  and  applied  to  all  classes.  To  regulate 
the  profits  of  one  class,  for  example,  while  allowing  other 
classes  to  reap  what  they  can  is  an  unfair  discrimination, 
provided,  of  course,  there  exists  no  special  reason  for 
such  discrimination.  In  not  extending  control  from  pro- 
ducer to  consumer  the  beneficial  effects  at  points  re- 
gulated will  be  liable  to  be  offset  at  points  unregulated. 

The  policy  of  voluntary  cooperation  pursued  by  the 
Food  Administration  naturally  tended  to  lesson  restric- 
tions. As  maximum  production  was  sought,  there  was  a 
marked  tendency  to  allow  producers  to  go  unregulated. 
It  was  thought  that  a  strong  patriotic  appeal  coupled 
with  voluntary  agreements  would  act  as  a  restraint  upon 
producers  from  taking  excessive  profits.  The  difficulty 
of  determining  excessive  profits  in  the  face  of  rising 
costs  very  often  created  the  impression  that  these  ap- 
peals were  ineffective.  Moreover,  the  fear  that  the  gov- 
ernment might  at  any  time  assume  drastic  control  over  a 
business  impelled  many  to  seek  for  an  official  definition  of 
profits  for  individual  businesses.  The  Food  Administra- 
tion likewise,  realized  the  futility  of  attempting  to  en- 
force "reasonable  profit  regulations"  without  a  specific 
determination  of  what  these  profits  should  be.  Thus,  by 
the  very  force  of  circumstances  our  policy  of  price  con- 
trol gradually  shaped  itself.  Maximum  margins  were 
declared  for  manufacturers,  wholesalers,  and  brokers. 
These  maximum  were  agreed  to  by  many  producers, 
manufacturers,  and  wholesalers,  and  thus  stamped  our 
policy  as  one  of  indirect  control,  rather  than  one  of  di- 
rect price-fixing. 

It  will  be  understood  from  what  has  been  said,  that 


Price  Control  and  Price-Fixing.  11 

control,  whether  of  articles  or  of  price  calls  for  some  in- 
terference with  the  normal  factors  of  production,  dis- 
tribution and  consumption.  Under  the  operation  of  the 
ordinary  laws  of  economics,  supply  and  demand  are  au- 
tomatically regulated,  with  price  as  the  magnet.  If  the 
supply  falls  off,  while  the  demand  remains  stable  or  in- 
creases, there  is  immediately  set  up  a  current  of  attrac- 
tive forces  between  price  and  supply,  which  ultimately 
tends  to  bring  supply  into  harmony  with  demand.  When 
the  government  interferes  with  either  the  supply  or  the 
price  of  a  commodity,  it  is  obvious,  that  the  same  laws 
operate  but  under  changed  conditions.  Upon  the  adapta- 
tion of  the  government  to  these  changed  conditions  de- 
pends in  a  large  measure  the  success  or  failure  of  any 
system  of  control. 

The  problem  of  government  control  is  essentially  the 
same  as  that  of  monopoly  control.  In  both  cases  a  suffi- 
cient amount  of  the  commodity  must  be  controlled  to 
exercise  an  influence  upon  price. 

The  so-called  Law  of  Monopoly  Price  does  not  tell  us 
what  price  will  be  fixed  for  an  article;  its  statement  is 
general  and  more  negative  than  positive  in  meaning. 
Monopolists  can  not  charge  any  price  they  wish,  if  they 
seek  maximum  profits.  Granting  a  more  or  less  com- 
plete control  of  a  commodity,  there  is  still  the  uncon- 
trollable factor  of  demand  with  its  fluctuations  and  pos- 
sible substitutes  to  deal  with.  Uutil  the  monopolist  can 
regulate  demand  with  the  same  ease  as  he  can  regulate 
supply,  his  control  over  price  will  be  far  from  being 
arbitrary.  While  the  same  in  many  respects,  govern- 
mental control  differs  from  monopolistic  control  in  this: 
that  it  does  not  depend  upon  demand  for  its  profits.  The 
demands  of  the  people  in  the  sense  of  their  power  to  pur- 
chase are  not  heard,  and  do  not  have  to  be  considered 
as  carefully  by  the  Government  as  by  a  private  monopoly. 
In  view  of  this  fact,  the  Government  has  more  freedom 
in  establishing  a  price;  it  may  for  the  time  being  in 
order  to  conserve  an  insufficient  supply  set  its  price  much 
higher  than  the  average  market  price. 


12  Price  Control  and  Price-Fixing. 

But  the  complications  of  government  control,  are  ex- 
ceedingly great.  Not  one  but  many  commodities  must 
be  controlled.  The  Monopolist  works  for  his  own  inter- 
est ;  government  officials  have  an  odious  task  to  perform 
which  opposes  individual  interest  in  behalf  of  general 
welfare. 

In  studying  different  systems  of  price  control,  one  be- 
comes aware  of  a  difference  in  the  degree  of  control  ex- 
ercised. How  far  did  the  policy  of  state  control  extend? 
How  drastic  was  the  scheme  of  rationing  and  how  di- 
rectly did  the  Government  fix  prices?  What  punish- 
ments and  penalties  were  laid  down  for  infractions  of  the 
law?  These  and  kindred  questions  naturally  suggest 
themselves  to  the  mind,  and  will  be  examined  with  re- 
ference to  the  Lever  Food  Control  Act  in  the  next  chap- 
ter. 

Price-fixing  or  Price  control  legislation  may  be  (1) 
Direct,  and  (2)  Indirect.  Direct  price-fixing  comprises 
all  those  laws  and  regulations  of  the  government  which 
aim  to  set  a  specific  price,  whether  maximum  or  mini- 
mum upon  commodities.2  Indirect  price-fixing  includes 
all  other  regulatory  measures  which  may  or  may  not  re- 
sult in  a  fixed  price.  Control  o£  profit  margins  is  a 
typical  example  of  the  indirect  method  of  fixing  a  pr^ce. 
The  sugar  refiner  agrees  that  his  margin  of  profit  will 
not  exceed  $1.30  per  hundred  pounds.  Now  if  the  gov- 
ernment becomes  a  large  enough  purchaser  of  raw  sugar, 
it  can  sell  this  to  refiners  at  cost,  to  which  is  added  the 
refiner's  margin.  If  in  addition,  the  jobber's  margin 
for  handling  is  determined,  and  added  to  the  cost,  the 
price  of  a  pound  of  sugar  to  the  consumer  can  be  fixed 
with  a  fair  degree  of  precision. 

The  causes  which  induce  price-fixing  are  usually:  (1) 
shortage  in  the  supply  of  commodities;  (2)  profiteering 
and  other  practices  which  result  in  hardship  and  suffer- 
ing to  the  consumer.  It  is  especially  during  some  ab- 
normal time,  such  as  during  a  war  that  these  causes  are 


2    Cf.  L.  H.  Haney,  Price-Fixing  in  the  United  States  during  the 
War.     1919,  p.  3. 


Price  Control  and  Price-Fixing.  13. 

operative  in  their  worst  forms.  The  instinct  of  self-pre- 
servation on  the  part  of  both  consumer  and  dealer 
quickly  manifests  itself  at  the  mere  possibility  of  a 
shortage  in  foodstuffs.  The  consumer  loses  no  oppor- 
tunity to  secure  as  large  a  store  of  supplies  as  he  can, 
while  the  dealer  anticipating  higher  profits  as  the  supply 
diminishes  holds  back  his  goods.3  Thus  in  addition  to 
the  real  shortage  there  is  created  an  artificial  shortage 
due  to  the  actions  of  both  consumers  and  dealers.  It  is 
impossible  to  estimate  the  superadded  shortage  which  re- 
sults from  such  hoarding.  During  the  war,  it  is  perhaps 
no  exaggeration  to  say,  that  stock  retarded  amounted  to 
almost  one  third  of  the  entire  supply.  Flour,  sugar,  coal, 
and  potatoes  are  usually  the  first  commodities  to  feel  the 
result  of  an  increasing  demand.  Producers,  wholesalers, 
and  manufacturers,  aggravate  the  situation  by  retarding 
the  flow  of  goods  in  order  to  reap  speculative  prices,  or 
as  in  the  jpa_se  of  manufacturers  by  buying  in  larger 
quantities  than  usual  in  order  to  protect  their  business. 

Overbuying  on  a  rising  market  also  induces  Govern- 
ment control  over  prices.  Once  assured  of  positive  short- 
age in  a  commodity  with  small  possibility  of  increasing 
it,  the  producer  and  dealer  know  that  prices  may  be  deter- 
mined by  what  the  public  will  bear.  In  many  cases 
secret  agreements  are  made  between  dealers  for  the  pur- 
pose of  maintaining  high  prices. 

That  these  two  are  the  chief  causes  in  provoking  gov- 
ernmental control  is  the  opinion  of  every  group  of  legis- 
lators who  have  attempted  to  regulate  prices.  The  Food 
Control  Act,  was  the  basis  for  the  whole  of  war-time 
control  of  food  and  fuel  in  the  United  States.  The  act 
states  its  aim  "to  assure  an  adequate  supply  and  equita- 
ble distribution,  and  to  facilitate  the  movement,  of  foods, 
fuels,  feeds,  including  fuel  oils  and  natural  gas,  and  fer- 
tilizer ingredients,  tools,  utensils,  implements,  machinery 
and  equipment  required  for  the  actual  production  of 

3     Cf.  Food   Production,  Conservation   and   Distribution — Hear 
ing  before  Committee  on   Agriculture,   (House)    May   I,   1017,  pp. 
72-73- 


14  Price  Control  and  Price-Fixing. 

foods,  feeds,  and  fuel,  hereafter  in  this  act  called  neces- 
saries; to  prevent,  locally  or  ^generally,  scarcity, 
monopolization,  hoarding,  injurious  speculation,  manipu- 
lations, and  private  controls  affecting  such  supply,  dis- 
tribution, and  movement;  and  to  establish  and  maintain 
governmental  control  of  such  necessaries  during  the 
war" .... 

President  Wilson  stated  the  purpose  of  the  Food  Con- 
trol Act  on  May  19,  1916  as  follows :  "The  objects  sought 
to  be  served  by  the  legislation  asked  for  are :  Full  inquiry 
into  the  existing  available  stocks  of  foodstuffs  and  into 
the  costs  and  practices  of  various  food  producing  and  dis- 
tributing trades;  the  prevention  of  all  unwarranted 
hoarding  of  every  kind  and  of  the  control  of  foodstuffs 
by  persons  who  are  not  in  any  legitimate  sense  producers, 
dealers,  or  traders;  the  requisitioning,  when  necessary 
for  the  public  use,  of  food  supplies  and  of  the  equipment 
necessary  for  handling  them  properly ....". 

Lord  Rhondda,  food  controller  of  Great  Britain 
showed  the  purposes  of  food  control  in  that  country  in 
his  statement  to  the  public :  "My  aim  is  to  safeguard  the 
interests  of  the  consumer,  and  to  do  away  with  profiteer- 
ing altogether,  and  to  prevent  excessive  profits  of  any 
kind — the  policy  is  to  limit  profits  at  every  step  from  the 
producer  to  the  consumer,  and  at  the  same  time  to  regu- 
late supply." 

A  distinction  is  sometimes  made  between  maximum 
and  minimum  fixed  prices.  The  maximum  fixed  price 
states  the  upper  limit  of  charge  for  a  commodity.  To  de- 
mand a  higher  price  than  the  legal  maximum  would  ren- 
der the  seller  liable  to  prosecution.  The  maximum 
price  is  designed  primarily  to  protect  consumers  from  ex- 
cessive charges.  Its  purpose  is  to  limit  profits,  but  not 
to  such  an  extent  that  production  will  be  curtailed.  The 
greater  the  need  for  increased  production,  the  higher  the 
maximum  should  be  fixed.  In  times  of  great  shortage 
marginal  or  higher  cost  producers  must  be  attracted  by 
the  promise  of  profits,  which  in  normal  times,  they  would 


Price  Control  and  Price-Fixing.  15 

have  small  possibility  of  getting.  But  to  fix  the  maxi- 
mum price  so  as  to  include  high  cost  producers  increases 
the  differential  between  these  producers  and  low  cost 
producers.  By  way  of  lessening  these  extra  profits  to 
the  latter,  a  government  may  fix  two  prices — a  minimum 
for  low  cost  producers  and  a  maximum  for  high  cost  pro- 
ducers. This,  however,  is  only  an  apparent  solution  of 
the  difficulty.  For,  unless  either  one  of  these  prices  is 
specifically  applied  to  individual  producers  or  manu- 
facturers, the  maximum  price  is  taken  by  all.  As  costs 
vary  greatly  in  the  same  line  of  business,  fluctuate  often, 
and  are  easily  concealed,  the  difficulty  of  classifying  pro- 
ducers on  a  cost  basis  is  almost  insuperable.  The  drive 
for  further  production  may  become  so  urgent,  that  the 
curbing  of  profits  is  kept  in  the  background. 

A  minimum  price  in  a  somewhat  different  sense  is 
sometimes  fixed  without  reference  to  a  maximum  price. 
In  such  cases  it  has  the  character  of  an  agreement  or 
promise  on  the  part  of  the  government  to  maintain  a 
stated  price  for  a  commodity,  even  though  market  condi- 
tions might  call  for  a  lower  price.  On  the  other  hand, 
the  market  price  may  go  above  the  minimum  price. 
Farmers,  who  are  obliged  to  wait  several  months  be- 
tween the  sowing  and  selling  of  their  crops,  consider  a 
fair  minimum  price,  a  protection  against  possible  de- 
creases in  market  prices.  The  conspicuous  instance  of  a 
minimum  fixed  price  in  this  sense  was  that  of  wheat  for 
which  two  dollars  a  bushel  was  guaranteed  by  the  gov- 
ernment of  the  United  States. 


CHAPTER  II. 
BEGINNINGS  OF  GOVERNMENT  CONTROL. 


No  elaborate  array  of  statistical  data  is  needed  to  dis- 
cover the  trend  of  prices  from  the  declaration  of  the 
European  war  in  1914  to  our  own  entrance  into  the  con- 
flict in  1917.  The  trend  was  unmistakably  upward  for 
practically  every  commodity.  To  understand  the  real 
significance  of  this  movement,  and  to  measure  it  more 
carefully,  will,  however  conduce  to  a  better  appreciation 
of  one  of  the  chief  factors  that  influenced  government 
control  of  food  products. 

Price  fluctuations  in  the  United  States  during  the 
quarter  century  preceding  the  outbreak  of  the  war  in 
Europe  on  July  28,  1914,  were  slight  when  compared  to 
the  sudden  rises  in  the  latter  part  of  1916,  and  the  first 
half  of  1917.  A  glance  at  the  index  number  for  "all 
commodities"  from  the  year  1890  to  1914  shows  the 
greatest  variations  to  be  a  drop  of  10  per  cent  in  1894, 
and  a  rise  of  8  per  cent  during  1900  and  again  in  1902.4 

Indeed,  from  1898  to  1913,  there  has  been  a  steady 
upward  tendency  for  prices,  the  culumative  effect  of 
which  was  large.  The  index  number  for  "all  commodi- 
ties" advanced  from  69  in  1898  to  100  in  19135  But  these 
rises  were  eclipsed  both  in  magnitude  and  suddeness  by 
those  in  the  latter  part  of  1916,  and  in  the  first  half  of 
1917. 

As  will  be  seen  from  Table  I,  wholesale  prices  in  the 
United  States  remained  comparatively  stable  during  the 
first  year  and  a  half  of  the  European  war.6  Between 
1915  and  1916,  the  increase  in  "building  materials"  was 
but  7  per  cent,  the  increase  in  "house  furnishings"  11  per 
cent.  The  greatest  advances  took  place  in  food  which  rose 
2  per  cent,  cloths  and  clothing  which  rose  27  per  cent, 

4  A  comparison  of  Prices  during  the  Civil  War  and  the  Pres- 
ent War,  Mimeograph  copy.    War  Industries   Board.     1919. 

5  Bureau  of  Labor  Statistics.     Bulletin,  No.  149. 

6  International  Price  Comparisons,  Dept.  of  Commerce,  p.  n. 

16 


Beginnings  of  Government  Control.  17 

and  metals  and  metal  products  which  rose  51  per  cent. 
The  war  had  raged  in  Europe  for  nearly  two  years,  yet 
the  rise  in  "all  commodities"  in  this  country  was  but  23 
per  cent  during  that  period.  But  because  this  general 
advance  was  unequally  distributed  among  commodities 
it  would  most  naturally  be  measured  by  the  average  mind 
by  its  maximum  and  not  its  minimum  swing  in  particular 
commodities. 

TABLE  I. 

Index  numbers  of  Wholesale  Prices,  by  groups  of  com- 
modities and  by  years,  1913  to  1917,  and  by  years  and 
months,  1917  and  1918.  (  1913-100)  7 


*  :."  1  ^ 

-Si  3  3  -j   2  ,2 

§:'  oS 

Year  and  Month 

Average  for   1913...  100    100  100  100  100  100  100  100  100  100 

Average   for   1914...  103    103  98  92  87  97  103  103  97  99 

Average   for   1915...  105    104  100  87  97  94  113  101  98  100 

Average   for   1916...  122    126  127  115  148  101  143  no  120  123 

Average   for   1917...  188    177  181  169  208  124  185  155  153  175 

1917    'I'*     3fV*IVj 

January    ...........  147     150  161  170  183  106  144  128  137  150 

February    ..........  150    160  162  178  190  108  146  129  138  155 

March    .............  162    161  163  181  199  in  151  129  140  160 

April    ...............  180    182  169  178  208  114  155  151  144  171 

May    ...............  196    191  173  187  217  117  164  151  148  181 

June    ...............  196    187  179  193  239  127  165  162  153  184 

July    ...............  198    180  187  183  257  '132  185  165  151  185 

August    .............  204    180  193  159  249  133  198  165  156  184 

September    ..  .......  203    178  193  155  228  134  203  165  155  182 

October    ............  207    183  194  142  182  134  242  165  164  180 

November    .........  211     184  202  151  173  135  232  175  165  182 

December    .........  204    185  206  153  173  135  230  175  166  181 

1918 

January    ............  205    188  209  169  173  136  216  188  178  185 

February    ..........  207    186  213  171  175  137  217  188  181  187 

March    .............  211     178  220  171  175  142  217  188  184  187 

April    ...............  217    179  230  170  176  145  214  188  193  191 

7    Monthly  Review  of  the  Bureau  of  Labor  Statistics,  Feb.  1918, 
p.  16;  1919,  p.  115. 


18  Beginnings  of  Government  Control. 

May  212  178  234  172  177  147  209  188  197  191 

June  214  179  243  171  177  148  205  192  199  193 

July  221  185  249  178  183  153  202  192  192  198 

August  229  191  251  178  183  156  207  227  191  202 

September  236  199  251  179  183  158  206  233  195  207 

October  223  199  253  179  186  157  204  233  197  204 

November  219  203  253  182  186  163  201  233  207  206 

December  221  207  246  183  183  163  182  233  204  206 

The  effect  of  the  War  upon  American  prices  can  best 
be  noted,  however,  over  a  longer  period.  Using  the 
grouping  of  the  Bureau  of  Labor  Statistics  one  finds  that 
the  average  index  number  increased  from  1913  to  No- 
vember 1918,  in  the  case  of  farm  products  119  per  cent; 
food,  103  per  cent,  cloths  and  clothing  153  per  cent, 
metals  and  metal  products  86  per  cent,  lumber  and  build- 
ing materials  63  per  cent,  house  furnishings  133  per 
cent;  miscellaneous  articles  107  per  cent. 

After  war  had  been  declared  the  rise  in  price  levels  was 
much  more  pronounced  in  European  Countries  than  in 
the  United  States.  In  England,  for  example,  the  index 
number  rose  from  102  in  1913  to  123  in  1915,  while  in  the 
United  States,  for  the  same  period,  the  rise  was  but  1  per 
cent.  In  1916  and  in  the  early  part  of  19117,  this  mar- 
gin between  the  index  numbers  of  the  two  countries  in- 
creased. Then  prices  in  the  United  States  took  a  sudden 
upward  swing. 

Once  started,  the  rise  in  prices  in  this  country  was  ex- 
traordinarily rapid.  "By  August,  1916,  prices  stood  25 
per  cent  above  the  prewar  level;  by  February,  1917,  50 
per  cent,  by  May  1917,  75  per  cent,  and  by  September 
1918,  100  per  cent  above  it."8 

The  grand  march  of  prices  did  not  begin  in  this 
country  until  we  had  declared  war.  In  April.  1917  the 
"all  commodities"  index  number  rose  from  156  to  170.9 
The  prices  of  metal  rose  to  unprecedented  heights.  The 
weighted  index  number  for  the  whole  metals  group  made 
by  the  War  Board  Price  Section,  rose  from  247  in  March 
the  month  before  war  was  declared  by  the  United  States, 
to  333  by  July  following.  Basic  pig  iron,  f .  o.  b.  at  Pitts- 
burgh rose  from  $32.25  to  $52.50  in  the  same  period; 
steel  plates  at  Pittsburgh  rose  from  $4.23  to  $9  nearly 

8  International  Price  Comparisons,  Dept.  of  Commerce,  p.  14. 

9  Government  Control  Over  Prices — Bulletin  No.  3,  p.  29. 


Beginnings  of  Government  Control.  19 

800  per  cent  above  their  prewar  quotation.10  The  index 
for  the  food  group  advanced  from  142  in  March  1917  to 
157  in  April  and  to  167  in  July  of  the  same  year.  The 
clothing  group  rose  from  157  in  March  to  187  in  July. 
The  clothing  group  rose  from  159  in  March  to  187  in 
July. 

The  above  figures  taken  from  the  Price  Section  of  the 
War  Industries  Board,*  show  slight  differences  when 
compared  with  similiar  index  number  compiled  by  the 
Bureau  of  Labor  Statistics  as  shown  on  pages  17  and  18. 
The  tables  compiled  by  the  War  Industries  Board  show 
that  farm  products  increased  36  points  from  March  1917 
to  July  of  the  same  year ;  food  rose  19  points,  cloths  and 
clothing  18  points,  metals  58  points  and  all  commodities 
25  points  during  these  five  months. 

Retail  prices,  on  the  other  hand,  are  a  much  better  in- 
dex of  the  cost  of  living  than  wholesale  prices.  For  be- 
tween the  wholesaler  and  the  retailer  there  are  many 
items  of  cost  which  enter  in  the  final  price  of  the  article. 
Retail  prices  over  short  periods  of  time  do  not  fluctuate 
as  often  as  wholesale  prices.  It  can  easily  happen,  there- 
fore, that  reductions  in  wholesale  prices  are  made  sev- 
eral days  and  sometimes  several  weeks  before  retailers 
adjust  their  prices.  Over  long  periods  of  time,  however, 
retail  prices  tend  to  change  in  the  same  proportion  as 
wholesale  prices.  Thus  it  will  be  seen  from  the  follow- 
ing table  that  retail  prices  followed  the  same  trend  dur- 
ing the  war  as  wholesale  prices,  with  few  exceptions.  The 
data  here  given  was  collected  by  the  Bureau  of  Labor 
Statistics,  and  indicates  that  the  retail  price  of  food  on 
the  whole  in  January,  1914,  was  five  per  cent  higher  than 
in  January,  1913.  In  January,  1917,  the  rise  over  Janu- 
ary, 1915,  amounted  to  30  per  cent.  Between  January, 
1917,  artd  January,  1918,  the  rise  was  33  per  cent.  The 
peak  was  reached  in  1920 ;  in  January  of  that  year  prices 
rose  65  per  cent  over  those  of  1917  and  105  per  cent  over 
those  of  1913. 


10    Ibid,  p.  29. 

*  The  price  Section  of  the  War  Industries  Board  under  the  di- 
rection of  Wesley  C.  Mitchell,  included  over  1,371  Commodities  in 
its  price  index. 


20 


Beginnings  of  Government  Control. 


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Beginnings  of  Government  Control.  21 

The  following  22  articles,  weighted  according  to  the 
consumption  of  the  average  family,  have  been  used  in 
estimating  the  percentage  of  increase  or  decrease  in 
prices;  sirloin  steak,  round  steak,  rib  roast,  chuck  roast, 
plate  beef,  pork  chops,  bacon,  ham,  lard,  hens,  flour,  corn 
meal,  eggs,  butter,  milk,  bread,  potatoes,  sugar,  cheese, 
rice,  coffee,  tea. 

1914  1917  1918  1919  1920  1921  1922 

22    Weighted    Articles +5     +30     +63     +88     +105    +75     +44 

These  extraordinary  rises  in  prices  in  the  United  States 
during  the  latter  months  of  1916  and  the  early  part  of 
1917  were  intensified  by  our  entrance  into  the  conflict. 
The  growing  shortage  of  food  supplies,  the  cries  of  pro- 
fiteering, the  demand  on  the  part  of  the  people  "that 
something  be  done"  were  strong  enough  motives  to  urge 
the  Government  to  decide  upon  some  kind  of  regulation. 

The  United  States  had  been  since  the  beginning  of  the 
war,  the  food  source  for  the  Allies.  As  the  war  con- 
tinued and  the  devastation  of  Europe  increased,  the  de- 
mands on  American  markets  grew  with  alarming  magni- 
tude. From  Table  No.  I  it  was  shown  that  prices  on  the 
whole  in  the  United  States  were  comparatively  stable  till 
the  latter  part  of  1916.  That  the  growing  demands  of 
Europe  upon  our  supplies  was  responsible  in  a  great 
measure  for  the  upward  pressure  on  prices  may  be  read- 
ily seen  by  noting  the  increase  that  year  in  exports,  the 
greater  part  of  which  took  place  in  the  later  months  of 
the  year.  During  the  year  ending  with  June  1914, 
Europe  had  drawn  upon  American  markets  for  products, 
amounting  to  $1,471,266,488,  which  exceeded  the  export 
figure  for  1913  by  $96,738,732.  During  the  year  1917, 
the  Allies  took  from  our  shores  $4.307,310,138  in  raw 
materials,  manufactures  and  foods,  or  almost  four  times 
the  amount  by  value  exported  in  1913.  That  prices 
should  rise  under  such  sudden  and  enormous  demand 
was  to  be  expected.  The  increase  of  exports  in  1915  was 
33  per  cent  over  the  figure  of  1913,  while  the  increase  in 
1916  was  103  per  cent. 

The  wheat  shortage  in  itself  w!as  a  problem  that  might 


22  Beginnings  of  Government  Control. 

have  called  forth  some  form  of  government  control.  The 
annual  wheat  consumption  of  Great  Britain,  France  and 
Italy  is  over  900,000,000  bushels,  of  which  100,000,000 
bushels  is  ordinarily  imported  from  the  United  States. 
Of  the  annual  760,000,000  bushels  produced  in  this 
country  the  domestic  consumption  is  about  646,000,000 
bushels.  European  production  of  wheat  became  less  and 
less  as  more  men  were  withdrawn  from  agriculture.  The 
British  carrying  vessels  were  being  constantly  reduced  in 
number  by  submarine  warfare  and  the  number  that  re- 
mained could  not  be  spared  for  the  long  haul  to  Australia 
for  wheat.  Siberian  wheat  was  cut  off  by  the  closing  of 
the  Dardanelles.  The  spring  of  1917  brought  enormous 
orders  from  Europe  for  American  wheat.  The  wheat 
crop  of  1917  in  this  country  was  the  smallest  since  1911, 
and  almost  400,000,000  bushels  below  that  of  1916.  The 
wheat  market  became  the  school  for  speculative  buying 
which  further  added  to  the  increase  of  prices. 

Before  the  war  Great  Britain  imported  annually  about 
2,060,000  short  tons  of  sugar  of  which  about  70  per  cent 
was  imported  from  Germany  and  Austria.  During  the 
war  she  found  it  necessary  to  turn  to  the  United  States 
and  Cuba  for  supplies  of  sugar.  The  sugar  exports  from 
this  country  jumped  from  96,862,462  pounds  in  1913  to 
1,685,195,537  pounds  in  1916.  This  demand  for  sugar 
was  bound  to  cause  higher  prices. 

Another  factor  which  exercised  no  little  influence  in 
raising  prices  all  over  the  world  was  the  almost  daily 
loss  of  tonnage.  Though  our  own  losses  were  compen- 
sated for  by  interned  vessels,  the  losses  of  the  Allies  be- 
came so  great  as  to  almost  threaten  defeat.  Commerce, 
so  seriously  handicapped,  threw  a  still  greater  strain 
upon  American  agriculture  and  industries. 

Perhaps,  the  strongest  reason  for  setting  up  the  ma- 
chinery for  Federal  control  over  the  prices  of  foodstuffs 
may  be  found  in  the  great  saving  it  would  effect  in  the 
purchase  of  Government  supplies  for  the  Army  and 
Navy.  To  have  allowed  each  department  of  the  Army 
and  Navy  to  purchase  its  own  supplies  from  whatever 


Beginnings  of  Government  Control.  23 

source  it  could,  would  have  resulted  in  dangerous  delays, 
unfilled  orders  and  exorbitant  prices.  Moreover,  each 
department  would  require  a  special  board  of  experts  to 
determine  whether  prices  were  reasonable,  and  to  make 
allotments  of  the  various  contracts.  The  necessity  of 
some  central  board,  whose  business  it  was  to  provide  for 
all  those  contracts  at  prices  which  bore  some  relation  to 
the  cost  of  production  plus  a  reasonable  profit  was  in- 
deed, apparent.  Furthermore,  the  question  of  priorities 
in  times  of  such  urgent  need  was  vital.  It  would  have 
been  a  mistaken  policy,  or  rather  the  breakdown  of  effi- 
ciency, for  example,  to  allow  street  cars,  to  have  the  first 
option  upon  steel,  wood  and  furnishings,  while  battle- 
ships, submarines,  and  other  war  apparatus  were  with- 
out materials  for  their  manufacture.  As  Secretary  Lane 
said  "The  government  must  have  a  board  that  will  say 
who  comes  first  and  what  conies  first;  otherwise  all  will 
be  confusion,  and  the  law  of  competition,  instead  of  work- 
ing to  lower  levels  will  work  to  raise  them ;  for  instead  of 
industries  competing  against  each  other  for  orders,  the 
purchasers  will  be  bidding  against  each  other,  as  at  an 
auction  sale,  as  they  are  doing  to-day."  Such  a  board 
with  powers  of  licensing  purchases,  might  regulate  and 
steady,  or  even  eliminate  much  of  the  demand  and  thus 
influence  prices. 

These  requirements  could  have  been  obtained  no  doubt, 
without  resorting  to  any  policy  of  fixing  limits  on  prices. 
The  Government  might  have  determined  the  price  it 
would  pay  for  its  purchases,  and  allow  general  trade  to 
go  unregulated.  The  result  of  such  a  policy,  how/ever, 
would  be,  either  the  probability  of  not  having  Govern- 
ment orders  filled  entirely,  or,  on  the  other  hand,  a  dis- 
regard of  the  necessities  of  consumers,  which,  if  applied 
to  foodstuffs,  would  entail  serious  consequences.  If  the 
price  for  government  purchases  was  above  that  paid,  or 
able  to  be  paid  by  consumers,  its  orders  would  be  filled 
to  the  neglect  of  the  latter.  But  if  the  Government's 
price  was  considerably  lower  than  the  market  price,  pro- 
ducers would  be  in  no  hurry  to  make  contracts  for  Gov- 


24  Beginnings  of  Government  Control. 

ernment  purchases.  The  purchases  of  the  Allied  Gov- 
ernments were  also  an  influencing  factor.  As  their 
necessities  were  more  urgent  than  ours,  their  prices 
would  be  higher. 

There  is  fairly  good  evidence  that  greater  prosperity 
was  enjoyed  by  many  people  of  the  United  States  during 
the  war  than  either  before  or  after  it.  Labor,  skilled  and 
unskilled  was  in  such  a  demand  that  workers  were  safe 
in  voicing  their  demands  for  increases.  There  were 
plenty  of  jobs  for  all;  even  boys  and  girls  could  earn  a 
fairly  good  pay.  These  high  wages  were  the  means  of 
bringing  to  industry  many  'marginal'  workers,  whose  in- 
comes considerably  increased  the  family  prosperity.  In 
most  cases  too,  these  surplus  earnings  went  towards 
higher  standards  of  living  and  indulgence  in  luxuries. 
It  is  true  that  for  some,  the  cost  of  living  advanced  more 
rapidly  than  the  rate  in  wages.  But  business  men, 
manufacturers  and  other  producers,  who  make  up  a  con- 
siderable portion  of  the  population,  reaped  higher  profits 
than  ever  before  and  these  as  consumers  probably  did 
a  great  deal  to  diffuse  their  lucrative  gains. 

The  increased  consumption  of  foodstuffs,  shoes  and 
clothing  due  to  military  life,  also  had  an  effect  upon 
prices.  The  healthy  appetites  of  those  who  spend  most 
of  their  time  in  working  or  exercising  in  the  open  air 
leaves  no  doubt  as  to  the  increased  consumption  of  food- 
stuffs by  a  large  army  and  navy.  "A  soldier  whether  at 
the  front  or  not  eats  about  half  as  much  again  as  in  pri- 
vate life.12  The  shoes  and  clothing  of  a  soldier  are  con- 
sumed more  quickly  than  the  same  articles  of  a  civilian. 
Though  durable  they  are  exposed  to  a  great  amount  of 
wear  and  tear.  Certainly  as  a  factor  in  increasing 
prices,  the  additional  consumption  due  to  a  large  army 
and  navy  can  not  be  overlooked. 

The  most  popular  explanation  of  high  prices  during 
the  war  was  contained  in  the  one  word  "profiteering." 
Editors  and  declaimers  did  much  to  arouse  the  public 
against  this  exaggerated  abuse,  for  the  blame  for  high 

12    The  Economist,  Aug.  26,  1916,  p.  355- 


Beginnings  of  Government  Control.  25 

prices  must  be  placed  upon  some  one,  and  it  was  easiest 
to  shoulder  it  upon  'middlemen',  'food  gamblers',  'specu- 
lators' etc.  Doubtless  some  increase  in  prices  was  due  to 
the  wider  margins  of  profits  taken  all  along  the  line  from 
producer  to  consumer.  This  is,  in  fact,  what  we  should 
have  to  expect.  All  classes  received  greater  compensation 
for  services  during  this  period  of  inflation,  and  higher 
profits  were  nothing  but  higher  wages  for  the  business 
man  and  producer.  On  July  11,  1917  President  Wilson 
issued  his  address  on  profiteering  to  the  mine  owners  and 
manufacturers  of  the  country.  In  his  pronouncement 
the  President  did  not  touch  on  details  nor  commit  himself 
to  any  particular  method  of  control,  but  merely  wished  to 
direct  the  attention  of  the  country  to  a  condition  that 
called  for  legislative  action. 

The  indictment  of  "profiteering"  did  not  apply  to  all. 
Thousands  of  men  were  imbued  with  the  proper  spirit 
and  sacrificed  gains  they  could  have  taken  with  impunity. 
Honest  dealers  welcomed  any  Federal  control  which 
would  enable  them  to  conduct  their  businesses  without 
the  serious  handicap  which  they  must  experience  when 
pitted  against  market  manupulators,  food  gamblers,  and 
hoarders.13  The  fact  is  that  profits  are  so  uncertain  and 
fluctuating  and  are  influenced  by  so  many  factors  which 
change  entirely  the  aspect  of  justice  in  taking  them,  that 
a  precise  definition  of  profiteering  is  practically  impos- 
sible. 

"There  has  been  one  Bureau  of  Washington  whose 
aggregate  expenses  now  run  beyond  a  million  dollars, 
that  has  seemed  to  make  its  especial  business  distilling 
into  the  public  mind  every  kind  of  vicious  idea  about 
business . .  It  has  sent  out  report  after  report  showing 
the  enormous  profits  of  this  or  that  company  or  trade. 
But  what  kind  of  profit?  always  the  profits  on  the  in- 
vested capital!  Rarely,  if  ever  have  these  profits  been 
figured  on  gross  sales.  Why?  Because,  howeve^  large 
the  profits  cited  have  been  on  invested  capital,  the  aver- 
age profits  on  sales  have  been  usually  less  than  five  or  six 

13    Congressional  Record  (House),  June  18,  1917,  Vol.  55,  p.  3794- 


26  Beginnings  of  Government  Control. 

per  cent,  often  half  this,  and  in  the  case  of  the  criminal 
meat  packers,  they  have  often  been  below  two  per  cent. 
And  this  brings  us  to  the  very  heart  of  profiteering.  (I 
make  bold  to  say  that  the  public  has  relatively  little  in- 
terest in  the  earnings  upon  capital,  in  any  event).  It 
will  often  happen  that  one  dealer  will  make  two  or  three 
times  as  much  on  his  invested  capital  as  his  neighbors 
and  competitors,  and  yet  sell  his  goods  to  the  public  at  a 
lower  price,  or  what  is  the  same  thing,  sell  better  goods 
for  the  same  money.  He  will  do  this  because  he  under- 
sells his  competitors.  The  matter  is  simply  this:  Some 
merchants  will  turn  their  capital  over,  ten,  twenty,  and 
even  twenty-five  times  a  year  (in  the  case  of  some  retail 
grocers).  Others  only  four  or  five  times  a  year.  That 
is  their  year's  sales  will  total  five,  ten  or  more  times  the 
sum  they  have  invested.  And  in  general,  the  higher  the 
turnover,  the  lower  the  days  expenses,  and  therefore 
lower  prices  to  the  public!14 

"It  will  do  no  good,  of  course,  to  rail  at  lucky  winners 
in  the  lottery.  The  public  was  greatly  mistaken  in  at- 
tributing low  prices  to  the  "stranglehold"  of  wicked 
bondholders,  and  is  equally  mistaken  to-day  in  attribut- 
ing high  prices  to  the  personal  turpitude  of  profiteers. 
How  can  we  blame  a  business  man  (especially  one  who 
as  an  officer  of  a  corporation,  acts  in  the  interests  of 
others  whose  capital  he  is  managing)  for  getting  the 
best  prices  he  can  ?  We  can  not  expect  him  to  sell  below 
the  market.  In  fact,  if  market  conditions  cause  profits 
to  fall  into  his  lap,  he  would  be  recreant  in  duty  to  throw 
them  away."15 

Professor  Fisher  might  have  added  to  this  statement 
an  explanation  of  the  illusory  nature  of  profits  for  a  go- 
ing concern,  and  show  how  the  large  profits  of  one  period 
are  absolutely  necessary  to  retrieve  the  losses  of  another 
period. 

Abnormal  rises  in  prices  always  create  suspicion  in  the 

14  Carl,  Snyder,  "Who  is   Profiteering?"  McClure's   Magazine, 
March,  1920,  p.  23. 

15  Irving  Fisher,  "Stabilising  the  Dollar,"  p,  59. 


Beginnings  of  Government  Control.  27 

minds  of  many  of  abnormal  profits.  A  more  rational  ex- 
planation of  high  prices  and  one  that  eliminates  much  of 
the  suspicion  harbored  about  profiteering  is  that  which 
looks  to  the  amount  of  money  in  circulation  in  a  country. 
Values  are  measured  by  prices  and  prices  are  expressed 
in  terms  of  money.  The  value  of  commodities  decrease 
when  money  becomes  plentiful  and  hence  prices  rise. 
When  a  government  issues  an  over  supply  of  currency,  as 
happens  frequently  in  times  of  war,  prices  invariably 
rise.  The  fallacy  of  overlooking  the  expansion  of  money 
in  a  country  and  of  making  profiteering  the  cause  of 
high  prices  is  explained  by  Professor  Hollander  as  fol- 
lows: 

Profiteering  "is  a  symptom  of  the  disease,  not  the 
disease  itself.  Profiteering  is  the  effect,  not  the  cause  of, 
the  high  cost  of  living.  Those  who  have  been  trying  to 
make  the  American  people  believe  that  profiteering 
causes  high  prices  are  in  a  class  with  the  quacks  who  will 
tell  a.  consumptive  that  his  loss  of  weight  is  due  to  his 
high  color,  instead  of  saying  that  both  are  the  symptoms 
of  a  tissue-destroying  bacillus.  The  answer  is  that  in- 
flation is  due  to  financial  mistakes  of  the  Administration 
at  Washington,  (1)  while  we  were  getting  ready  for  war, 
(2)  while  we  were  at  war,  and  (3)  after  the  war  was 
over.  During  each  of  these  periods,  the  Treasury  per- 
mitted, and  indeed,  encouraged  an  increase  in  the  coun- 
try's money  supply,  and  the  certain  prospect  of  rising 
prices."16 

Turning  our  attention  from  the  causes  of  govern- 
mental control  over  prices,  we  shall  now  consider  the 
legislative  act  from  which  the  Food  Administration  took 
its  rise.  The  Lever  Food  Control  Bill  (H.  R.  4961) 
passed  the  senate  after  much  opposition  and  debate  on 
August  10,  1917.  The  Lever  Bill  was  designed  to  pre- 
vent abnormal  rises  in  prices  of  foodstuffs  and  fuel  to  the 
consumer,  to  provide  a  plan  for  Army  and  Navy  necessi- 

16  Jacob  H.  Hollander,  New  York  Sunday  Times,  May  2,  1920, 
"How  inflation  touches  every  man's  pocket-book." 


28  Beginnings  of  Government  Control. 

ties  and  to  increase  our  exports  of  food  to  the  Allied 
Nations.17 

As  originally  constructed  the  bill  contained  provision 
for  the  fixing  of  both  maximum  and  minimum  prices. 
The  Committee,  however,  influenced  by  the  unsuccessful 
attempts  of  European  countries  with  the  'minimum' 
struck  out  this  feature  of  the  plan  from  the  Bill.18 

This  Bill  was  under  long  and  vexatious  consideration 
not  only  in  Congress  but  wherever  its  effects  would  be 
felt.  Its  opponents  declared  that  it  was  an  autocratic 
imposition  on  the  American  public.  "It  is  class  legisla- 
tion pure  and  simple.  .  You  hold  up  the  farmer  as  a 
class"  (Congressman  Young).19 

Senator  Gore  denounced  it  as  the  "sweepings"  of  all 
British  and  Canadian  Food  Acts,  and  predicted  that  if 
passed  "it  would  cause  losses  to  producers  (in  1917)  of 
$250,000,000  in  wheat  and  $500,000,000  in  corn  and  re- 
sult in  famine  next  year  through  reduced  production." 
Senator  Lodge  said  that  price  fixing  was  as  old  as  organ- 
ized society  itself,  but  in  almost  every  case  it  was  a  dis- 
mal failure. 

The  Press  leveled  its  guns  at  the  measure  also;  the 
New  York  Evening  Sun  pointed  out  the  disasters  that 
would  result  from  its  passage  namely:  "reduced  pro- 
duction, chaos  in  marketing,  the  withdrawal  of  capital 
and  expert  skill  from  the  food  trades,  panicky  buying, 
high  prices  and  grievous  shortage  at  the  points  of  con- 
sumption." 

The  Lever  Bill  so  bombarded,  was  finally  passed  on 
August  10th,  1917.  Pending  its  passage,  however,  Pre- 
sident Wilson  had  appointed  Mr.  Hoover  as  Food  Admin- 
istrator on  May  19,  1917.20  As  this  bill  is  the  basis  for 
the  whole  of  war-time  control  of  both  food  and  fuel,  it 
will  be  of  value  to  analyse  it  more  fully. 

The  sweeping  control  which  this  statute  provides  for 

17  Congressional  Record  (Hous_e),  June  18,  1917,  Vol.  55,  p.  3799 

18  F.  O'Hara,  Catholic  World,  July  1917,  p.  524. 

19  Congressional  Record  (House),  June  18,  1917,  Vol.  55,  p.  3799 

20  "Food  Administration,"  1917,  p.  6. 


Beginnings  of  Government  Control.  29 

can  be  clearly  seen  from  its  terminology.  The  purposes 
of  the  act  are : 

"To  assure  an  adequate  supply  and  equitable  distribu- 
tion, and  to  facilitate  the  movement,  of  foods,  feeds,  fuel, 
including  fuel  oil  and  natural  gas,  and  fertilizer  and 
fertilizer  ingredients,  tools,  utensils,  implements,  ma- 
chinery, and  equipment  required  for  the  actual  pro- 
duction of  foods,  feeds,  and  fuel,  hereafter  in  this  act 
called  necessaries;  to  prevent  locally  or  generally 
scarcity,  monopolization,  hoarding,  injurious  specula- 
tion, manipulation  and  private  controls  affecting  such 
supply,  distributions,  and  movement;  and  to  establish 
and  maintain  government  control  of  such  necessities 
during  the  war " 

It  furthermore  makes  it  unlawful  for  any  person  will- 
fully to  destroy  any  necessaries  for  the  purpose  of  en- 
hancing the  price  or  restricting  the  supply  thereof:  and 
prohibits  any  arrangement  or  practice  of  limiting  facili- 
ties for  transportation,  production,  harvesting  manufac- 
turing or  storing. 

Section  5  sets  forth  the  means  to  be  used  to  prevent 
such  evil  practices.  By  force  of  this  Section  the  Presi- 
dent is  given  authority  to  license  the  importation,  manu- 
facture, storage,  mining  or  distribution  of  any  necessi- 
ties. In  this  section  is  contained  the  chief  feature  of  the 
United  States  price  control  policy,  and  that  which  most 
distinguishes  it  from  the  policies  of  other  European 
countries. 

"The  backbone  of  the  administration  of  war-time  con- 
trol over  foods  lay  in  the  license  system."21  As  contained 
in  Section  5.  it  gave  the  President  authority  to  bring 
under  license  control  any  dealer  in  necessaries  except 
those  exempt  in  the  law.  By  virtue  of  this  section  the 
President  is  empowered  to  control  by  license  all  busi- 
nesses engaged  in  the  manufacture,  importation,  storage, 
mining  or  distribution  of  any  necessaries.  After  a  date 
fixed  by  the  President,  no  dealer  engaged  in  any  of  the 
above  named  occupations  could  pursue  the  same  without 

21     Government  Control  Over  Prices,  Bull.  No.  3,  p.  43. 


30  Beginnings  of  Government  Control. 

a  license,  exception  having  been  made  for  those  engaged 
in  farming,  cooperative  associations  of  farmers,  common 
carriers  and  retailers  whose  gross  sales  did  not  exceed 
$100,000  per  annum. 

Section  6  defines  necessaries  and  provides  that  any 
person  who  willingly  hoards  any  necessaries  shall  upon 
conviction  be  subject  to  a  fine  not  exceeding  $5,000  or  be 
imprisoned  for  not  more  than  two  years. 

Section  10,  authorized  the  President  to  requisition 
foods,  feeds,  fuels,  and  other  supplies  necessary  to  the 
support  of  the  Army  or  maintenance  of  the  Navy ;  when 
such  actions  take  place  he  shall  ascertain  and  pay  a  just 
compensation  therefor. 

Section  14  provides  that  whenever  the  President 
should  find  that  the  production  of  wheat  required  stimu- 
lation he  could  determine  and  fix  a  reasonable  price  for 
wheat.  A  guaranteed  price  of  not  less  than  $2  per  bushel 
was  fixed  for  No.  1  Northern  Spring  wheat,  binding  till 
May  1,  1919. 

Section  18  makes  the  appropriation  of  $2,500,000  from 
the  Treasury  of  the  United  States  for  the  administration 
of  the  act. 

Section  24  determines  that  the  Act  should  cease  to  be 
in  effect  when  the  existing  state  of  war  between  the 
United  States  and  Germany  shall  have  terminated. 

The  license  system,  as  has  been  said,  was  the  soul  of 
Price  Control.  The  system  required  that  all  dealers, 
producers  and  handlers  of  foodstuffs,  with  some  excep- 
tions must  be  registered  by  the  Food  Administration  and 
that  each  licensee  should  not  receive  more  than  a  "rea- 
sonable margin  of  profit"  on  the  "cost  basis"  of  produc- 
tion. This  meant  that  the  price  should  be  determined 
from  the  elements  in  the  entrepreneur's  cost  of  produc- 
ing the  commodity.  Since  these  costs  differ  widely  not 
only  for  different  articles  but  for  the  same  article,  the 
rule  was  difficult  of  application.  Yet  if  the  plan  could 
carry  any  suggestions  of  fairness  these  difficulties  had 
to  be  met  and  overcome.  To  meet  these  different  varia- 
tions of  the  cost  method  of  price  fixing  was  therefore  em- 


Beginnings  of  Government  Control.  31 

ployed.22.  In  some  cases,  prices  were  fixed  after  the  pro- 
duction had  been  completed;  in  other  cases,  prices  were 
fixed  before  the  production  was  undertaken.  Ante-pro- 
duction prices  were  fixed  upon  what  the  average  costs  to 
the  producer  should  be,  thus  setting  a  standard  of  price- 
costs.  The  difficulties  to  be  met  by  the  price-fixing 
agencies  were  two-fold;  first,  the  price  must  be  high 
enough  to  insure  necessary  production.  Secondly,  the 
price  must  be  low  enough  to  prevent  excessive  profits. 

The  cry  of  the  country  during  the  years  1917  and  1918 
was  for  greater  production  to  meet  the  demands  of  our 
own  and  the  Allied  Forces  and  also  that  of  consumers. 
To  stimulate  production  theoretically  the  cost  price  of  the 
lowest  and  least  efficient  producer  should  be  taken  as  a 
standard.  Practically,  however,  it  was  found  that  some 
of  the  very  high  cost  producers  were  so  inefficient  that 
their  costs  had  to  be  disregarded.  The  cost  chosen  was 
often  called  the  "bulk-line  cost" — that  is,  the  cost  that 
covered  the  bulk  of  the  production.23  This  cost  was 
usually  found  at  the  point  which  included  from  80  per 
cent  to  90  per  cent  of  the  production.24  Thus  the  "bulk- 
line  cost"  was  not  necessarily  the  highest  cost. 

The  "cost  basis"  having  been  accepted  as  the  rule  in 
determining  prices,  it  became  necessary  to  work  out  a 
reasonable  margin  of  profit.  At  first  only  the  general 
principle  was  formulated  that  no  dealer  was  entitled  to, 
a  greater  per  cent  of  profit  than  he  made  in  pre-war 
times.  Mr.  Hoover  in  a  speech  before  the  Pittsburgh 
Press  Club  in  April  18,  1918  said  in  part:  "I  do  not  be- 
lieve that  any  person  in  the  United  States  has  a  right  to 
make  one  cent  more  profit  out  of  any  employment  than 
he  could  have  made  under  pre-war  conditions." 

The  average  percentage  of  profit  was  figured  on  the 
basis  of  the  three  immediate  pre-war  years.  It  soon  be- 

22  Simpson,  K.,  Price-Fixing  and  the  Theory  pf  Profit,  Quar- 
terly Journal  of  Econ.,  Nov.,  1919,  p.  141. 

23  Simpson,  KM  Quarterly  Journal  of  Economics,  Nov.  1919,  p. 
147- 

24  Taussig,  F.,  Price-Fixing  as  seen  by  a  Price-Fixer,  Quarterly 
Journal  of  Econ.,  Feb.  1919,  p.  219. 


32  Beginnings  of  Government  Control. 

came  evident,  however,  both  to  the  Food  Administration 
and  to  dealers  that  a  more  definite  rule  of  profits  was 
needed.  The  effectiveness  of  the  regulation  depended  to 
a  large  extent  upon  the  rigor  with  which  it  was  enforced. 
Moreover,  its  lack  of  precision  furnished  opportunities 
for  unscrupulous  dealers  to  pad  costs  and  thereby  take 
large  profits. 

With  these  shortcomings  in  mind,  the  Food  Adminis- 
tration on  April  6,  1918,  announced  a  series  of  definite 
maximum  margins  of  profit  for  wholesalers  and  retailers 
on  the  more  important  commodities.  The  plan  adopted 
was  to  fix  two  margins;  the  higher  margin  was  to  be 
made  applicable  to  the  dealers  with  high  costs,  and  the 
lower  margin  to  those  of  lower  costs.  There  was  no 
thought  of  making  these  margins  absolute  and  final. 
Possible  exceptions  might  be  allowed,  but  the  burden  of 
proof  rested  upon  the  dealer  who  violated  them. 

These  margins  were  released  by  the  Food  Administra- 
tion from  time  to  time  over  the  period  from  April  6, 
1918  to  the  signing  of  the  armistice.  They  covered  the 
most  important  foodstuffs  such  as  sugar,  wheat,  flour, 
bread,  lard,  lard  substitutes,  hams,  bacon,  condensed  and 
evaporated  milk,  rice,  hominy  grits,  oatmeal,  rolled  oats, 
beans,  corn,  syrup,  canned  goods,  etc. 

With  the  system  of  maximum  margins  in  operation, 
the  Food  Administration  dispensed  with  the  regular 
monthly  reports  from  licenses. 

Efforts  to  reach  retailers  before  November  7,  1918 
were  largely  left  to  the  associated  Food  Administrators 
in  each  state,  and  to  the  publicity  campaigns  of  the  nu- 
merous "Fair  Price  Committees"  through  the  country. 
No  severer  sanction  than  public  stigma  could  be  held  over 
the  heads  of  recalcitrant  retailers,  until  the  Food  Admin- 
istration issued  on  November  7,  1918  a  series  of  retail 
maximums  to  which  from  time  to  time  were  added 
special  regulations  pertaining  to  single  commodities. 

The  special  licensee  regulations  were  issued  with  such 
rapidity  and  promulgated  in  so  many  different  man- 
ners— by  press,  by  pamphlets,  by  notification  of  State 


Beginnings  of  Government  Control.  33 

Food  Administrators,  by  typewritten  sheet — that  a 
chronological  study  of  these  would  be  confusing  and  diffi- 
cult. It  is  much  more  satisfactory  to  arrange  them  ar- 
cording  to  distinct  Food  groups. 

We  have  seen  thus  far  the  distinction  between  price 
control,  price-fixing  and  rationing.  The  Food  Control 
Act  has  been  outlined  and  special  features  have  been 
noted.  The  following  chapters  will  be  devoted  to  a  more 
detailed  study  of  the  most  important  food  problems  faced 
by  the  Food  Administration  during  the  war.  It  is  not 
easy  to  arrange  these  problems  with  fine  regard  to  their 
importance,  nor  is  it  perhaps  of  any  advantage  to  do  so. 
Chapter  III  will  consider  the  control  of  wheat,  flour  and 
bread;  Chapter  IV,  the  control  of  sugar;  Chapter  V,  the 
control  of  meat  and  dairy  products ;  and  Chapter  VI,  the 
control  of  Canned  goods. 


CHAPTER  III. 
CONTROL  OF  WHEAT,  FLOUR  AND  BREAD. 


There  arose  in  1917  a  world-wide  shortage  of  wheat 
which  turned  the  attention  of  warring  Europe  more 
keenly  than  before  to  food  supplies,  and  at  the  same  time 
made  the  Allies  greatly  dependent  upon  American  wheat 
production.  In  that  year  the  total  amount  harvested  in 
the  United  States  was  but  650,828,000  bushels,  with  a 
carry  over  from  the  preceding  year  of  51,078,000  bushels. 
The  demands  of  the  Allies  for  wheat  were  constantly  in- 
creasing in  proportion  as  their  own  production  was 
diminishing.  This  will  be  clearly  seen  from  the  follow- 
ing table,  which  shows  our  wh'eat  exports  to  France  and 
England  in  1913,  1914  and  1915. 

Wheat  Exports  from  United  States.25 
Country  1913  1914  1915 

France  4,931,708          5,536,731          49,878,655  bu. 

England        27,963,980        23,414,555          55,459,328  bu. 

Similarly,  our  wheat  exports  to  other  countries  in- 
creased. The  table  following  shows  the  tremendous  in- 
crease of  wheat  exports  in  1915. 

Wheat  Exports  from  United  States  to  Europe.26 
1913  1914  1915 

83,132,758  bu.          82,552,520  bu.  231,859,859  bu. 

European  demand  for  our  wheat  in  1915,  enormous  as 
it  was,  could  be  satisfied  because  of  the  large  yield  in  the 
United  States  in  that  year,  which  reached  1,025,801,000 
bushels.  The  increase  in  production  in  1915  over  the 
figure  for  1914  was  134,784,000  bushels.  The  high  level 
reached  in  1915  dropped  to  639,886,000  bushels  in  1916, 
with  a  carry-over  of  178,203,000  bushels.  This  amount 

25  Foreign  Commerce  &  Navigation  of  U.  S.,  1917,  p.  374. 

26  Foreign  Commerce  &  Navigation  of  U.  S.,  1917,  p.  375. 

34 


Control  of  ifrheat,  Flour  and  Bread.  35 

enabled  us,  however,  to  export  to  Europe  160,880,000 
bushels.27 

Although  in  the  fall  of  the  latter  year,  a  large  area  of 
winter  wheat  was  sown,  about  one  third  of  this  failed  to 
mature  because  of  heavy  frosts.  The  production,  thus 
lessened,  amounted  in  1917  to  650,828,000  bushels  with  a 
carry-over  from  the  preceding  year  of  51,078,000  bush- 
els. Such  a  decrease  of  wheat-stuffs  was  keenly  felt  in 
Europe. 

The  wheat  situation,  just  outlined,  confronted  our  leg- 
islators upon  our  own  entrance  into  the  war,  and  its  diffi- 
culty and  urgency,  doubtless,  made  it  the  central  problem 
in  the  organization  of  Government  control  of  food-stuffs. 
It  accounts  also  for  the  desire  of  President  Wilson  to  in- 
sure greater  production  by  providing  farmers  with  a 
legally  guaranteed  price  per  bushel.  The  importance  of 
this  measure  soon  became  evident,  for  Mr.  Hoover  in  a 
report  to  the  Food  Committee  estimated  that  the  amount 
of  wheat  needed  by  the  Allies  in  1918  would  reach  500 
million  bushels.28  Of  this  amount,  he  hoped  that  the 
United  States  would  be  able  to  supply  a  large  part. 

Now,  the  potential  supply  of  wheat  to  meet  this  need 
was  estimated  as  follows  :29 

Australia   10  million  bushels. 

Argentine 40      " 

Canada   100      " 

United  States  .      ..200      " 


350 

The  last  figures  show  that,  in  addition  to  what  was 
needed  for  home  consumption,  the  United  States  could 
probably  furnish  the  Allies  with  200  million  bushels. 
This  amount,  however  (assuming  that  Australia,  Argen- 
tine and  Canada  could  not  increase  their  supplies),  still 
left  a  shortage  for  the  Allies  of  150  million  bushels. 

27  Foreign  Commerce  &  Navigation  oj  U.  S.,  1917,  p.  375. 

28  Minutes   of  the    Price-Fixing  Committee,  Appendix  No.  40. 
The  figure  cited  above  included  flour,  bran  and  middlings. 

29  U.  S.  Food   Administration,   Policies   &   Plan   of   Operation 
(Wheat,  Flour,  Bread),  p.  7- 


36  Control  of  Wheat,  Flour  and  Bread. 

Could  the  United  States  so  increase  her  production  of 
wheat  as  to  supply  this  desideratum? 

It  was,  furthermore,  problematical  whether  Australia 
and  Argentine  could  ship  their  quotas  to  the  Allies,  for 
German  submarine  warfare  had  already  made  serious 
ravages  in  shipping,  and  had  reduced  British  tonnage  to 
such  an  extent  that  vessels  for  long  hauls  were  out  of  the 
question.  The  fact  is  that  neither  Australia  nor  Argen- 
tine exported  much  wheat  to  the  Allies  during  1917,  1918 
and  1919.  By  the  defect  of  the  other  potential  sources 
of  supply,  the  United  States  and  Canada  thus  became  the 
wheat  markets  for  the  Allies  during  those  years. 

Such  a  demand  upon  our  wheat  fields  brought  with  it 
higher  prices  for  wheat.  American  and  European  buy- 
ers competed  with  each  other  in  our  markets,  and  prices 
rose  rapidly.  From  March  to  May,  1917,  the  price  in- 
creased $1  a  bushel  for  No.  2  red  winter  wheat  at 
Chicago,  reaching  an  average  for  May  of  $2.97.  No.  1 
Northern  spring  wheat  averaged  $2.98  at  Minneapolis 
for  the  month  of  May.  On  May  11,  the  price  at  the 
Chicago  Board  of  Trade  was  $3.15  a  bushel,  at  which 
point  the  Board  was  compelled  to  prohibit  the  trading  in 
wheat  futures  and  ordered  a  settlement  of  all  outstand- 
ing contracts.30  This  was  the  highest  price  in  the  history 
of  the  United  States,  being  50  per  cent  beyond  the  maxi- 
mum during  the  Civil  War. 

It  might  seem  that  these  prices  would  have  been  suffi- 
cient to  stimulate  the  farmer  to  increase  his  acreage  of 
wheat.  Few]  farmers,  however,  had  received  anything 
like  the  above-named  prices.  The  1916  crop  had  long 
been  disposed  of  for  about  $1.50  per  bushel;31  the  1917 
crop  would  not  begin  to  move  to  the  market  till  Septem- 
ber. Between  May  and  September  the  price  might  drop, 
and  the  farmer  would  naturally  feel  that  speculators 
were  reaping  the  fruits  of  his  toil.  With  this  idea  in 
mind,  then,  Congress  must  evolve  some  plan  to  make 

30  The  Farmer  and  His  Wheat,  Collier's,  Aug.  n,  1917. 

31  U.  S.  Food  Administration,  Minutes  of  Price-Fixing  Commit- 
tee, Appendix,  No.  13. 


Control  of  Wheat,  Flour  and  Bread.  37 

wheat  culture  attractive  so  as  to  insure  the  largest  pos- 
sible crop  for  1918. 

The  food  control  act  (Lever  Act)  was  approved  by  the 
President  on  August  10,  1917.  Congress,  it  is  to  be  noted 
did  not  name  a  price  for  any  other  commodity  but  wheat 
for  which  a  minimum  of  $2  per  bushel  was  fixed  for  the 
1918  wheat  harvest.  This  price  did  not  apply  to  the  1917 
crop;  provision  had  been  made  by  Congress,  however, 
whereby  the  President  was  authorized,  should  he  deem  it 
necessary,  to  determine  a  reasonable  guaranteed  price 
for  the  crop  that  was  now  moving  to  the  market. 

The  $2  guaranteed  price  was  26  cents  per  bushel  lower 
than  the  market  price  prevailing  at  Chicago,  when  the 
food  control  act  became  a  law.  Evidently,  Congress  did 
not  expect  farmers  to  raise  a  bumper  crop  for  the  legally 
guaranteed  price,  but  depended  upon  the  President  for  a 
more  accurate  determination  of  that  price.  The  farm- 
ers also,  (about  to  market  their  1917  crop  and  fearing 
that  the  price  would  fall)  voiced  their  anxiety  to  the  Pre- 
sident in  behalf  of  a  minimum  price  which  should  apply 
to  the  present  crop. 

The  President  saw  the  necessity  for  such  a  step,  and 
sought  measures  to  make  it  a  reality. 

On  August  24  then  (several  days  after  the  appoint- 
ment of  the  Food  Administrator),  President  Wilson  an- 
nounced the  appointment  of  a  committee  to  determine  a 
fair  price  at  which  wheat  should  be  purchased  by  the 
Government.  This  Committee  on  prices  included  the  fol- 
lowing names  :32 

Harry  A.  Garfield,  President  of  the  Williams  College, 
Williamstown,  Mass. 

Charles  J.  Barrett,  Union  City,  Ga. 

William  N.  Doak,  Roanoke,  Va.  Vice-President  of  the 
Brotherhood  of  Railway  Trainmen. 

32  Cf.  Multigraph  Copy  of  U.  S.  Food  Administration,  Minutes 
of  the  Price-Fixing  Committee,  p.  3.  It  is  to  be  noted  that  Mr. 
Hoover  took  no  part  in  the  deliberations  of  this  Committee,  and 
expressly  wished  the  President  to  make  known  to  the  public  his 
non-interference.  Cf.  "Book  of  Information,"  U.  S.  Grain  Corpo- 
ration, Aug.  23,  1919,  p.  12. 


38  Control  of  Wheat,  Flour  and  Bread. 

Eugene  E.  Funk,  Bloomington,  111.  President  of 
National  Corn  Association.  , 

Edward  F.  Ladd,  Fargo,  N.  D.,  President  of  North 
Dakota  Agricultural  College. 

R.  Goodwin  I&tt,  Charleston,  S.  C.,  Secretary  of  Na- 
tional Council  of  Farmers'  Cooperative  Association. 

James  W.  Sullivan,  Brooklyn,  N.  Y.,  American  Federa- 
tion of  Labor. 

L.  J.  Tabor,  Barnsville,  0.,  Master  of  Ohio  State 
Grange. 

Frank  Taussig,  Chairman  of  Federal  Tariff  Commis- 
sion. 

Theodore  N.  Vail,  New  York  City,  President  of  New 
England  Telephone  and  Telegraph  Co. 

Henry  J.  Waters,  Manhattan,  President  of  Kansas 
State  Agricultural  College. 

These  men  met  at  Washington,  D.  C.  on  August  20, 
1917  and  after  being  addressed  by  Mr.  Hoover,  set  to 
work  to  outline  the  problem  for  fixing  a  "fair  price"  for 
wheat.  Among  the  factors  drawn  up  for  consideration 
were  the  following: 

"1.    Welfare  of  the  industrial  population  as  affected  by 
the  cost  of  bread. 

"2.    The  effect  of  high  wheat  prices  upon  the  cattle  rais- 
ing and  dairy  industries  as  the  result  of  reduced  corn 
acreage  and  the  high  prices  of  feeds. 
"3.    The  relation  of  American  prices  to  the  world  condi- 
tion and  the  needs  of  our  Allies. 

"4.     The  relation  of  the  general  policy  to  the  changed 
conditions  at  the  end  of  the  war. 

"5.     The  relation  of  the  1917  wheat  to  the  production 
prices  and  acreage  of  the  1918  wheat  crop." 

The  Committee,  composed  of  men  whose  interests  were 
widely  different  and  whose  experience  of  price-fixing  was 
little,  attacked  the  problem  in  the  most  direct  manner. 
Time  was  not  available  for  any  minute  search  into  costs 
and  profits  at  every  move  of  production.  A  price  satis- 
factory to  the  agricultural  interests  must  be  selected,  and 


Control  of  Wheat,  Flour  and  Bread.  39 

with  this  purpose  in  view,  it  was  almost  certain  that  the 
Committee  could  account  for  its  existence  by  fixing  the 
price  high  enough. 

But  what  should  this  price  be?  Representatives  of  the 
farmers  lost  no  time  in  placing  before  the  Committee  the 
absolute  necessity  of  a  price  as  high  as  $2.50  per  bushel. 
The  farmers,  they  averred,  had  long  since  been  imposed 
upon,  and  now  when  their  cooperation  was  of  supreme 
importance  they  should  not  be  antagonized  by  any  un- 
fairness. Mr.  Henry  J.  Waters,  president  of  Kansas  State 
Agricultural  College,  in  his  paper  read  before  the  Com- 
mittee stated  that  if  the  price  of  wheat  for  the  present 
season  was  not  high  enough,  other  products  of  the  farm, 
forest  and  factory  would  have  to  be  correspondingly 
lowered  or  the  farmer  would  feel  that  special  tax  had 
been  levied  upon  him  for  the  benefit  of  the  rest  of  man- 
kind.33 

Other  represented  interests,  while  not  combined  to  op- 
pose a  high  price,  saw  the  problem  from  the  consumers 
view-point,  and  emphasized  the  hardships  that  would 
result  from  a  high  price  for  such  prime  necessities  as 
wheat  and  flour. 

Little  satisfaction  could  be  gained  from  consulting 
statistics  on  cost.  Estimates  ranging  from  $1.41  per 
bushel  (thus  Professor  G.  E.  Call  of  the  Kansas  State 
College)  to  $3.00  (thus  Mr.  I.  M.  Hagen,  Commissioner 
of  Agriculture  in  North  Dakota)  were  not  calculated  to 
bring  the  Comittee  to  a  unanimous  opinion.* 

On  August  28th,  the  committee,  after  hearing  the 
arguments  of  various  members,  decided  to  arrive  at  a 
price  by  ballot.  Three  formal  ballots  Were  taken,  each 
of  which  returned  the  following  result:  four  for  $2.50 
wheat;  one  for  $2.30;  two  for  $2.25;  two  for  $2.10, 
two  for  $1.84.  Informal  ballots  were  then  taken  upon 
the  following  prices:  $2.15;  f$2.20;  $2.25;  $2.30.  On 

33     Ibid. 

These  differences  in  costs  rn^y  be  explained  by  taking  into 
consideration  the  relative  productivity  of  the  land,  differences  in 
labor  costs,  and  methods  of  cultivation. 


40  Control  of  Wheat,  Flour  and  Bread. 

August  30th,  the  Committee  finally  adopted  the  price  of 
$2.20  per  bushel  for  No.  1  Northern  spring  wheat  at 
Chicago.  After  reporting  this  price  to  the  President,  it 
was  immediately  announced  to  the  country.  It  will  be 
observed  that  this  price  was  a  compromise  between  the 
$1.84  proposed  by  the  labor  representatives  and  the  $2.50 
advocated  by  the  agricultural  interests. 

Upon  the  President's  announcement  of  the  $2.20  price 
the  Food  Administration  affirmed  its  intention  "to  use 
every  authority  given  it  under  the  food  control  act  and 
the  control  of  exports  to  effect  the  universality  of  this 
fair  basis  throughout  the  whole  of  the  1917  harvest  year 
without  change  of  fluctuation." 

The  difference  in  viewpoint  is  at  once  seen  between  the 
policies  of  the  legislative  and  executive  branches  of  the 
Government.  Congress  provided  a  minimum  price  for 
the  1918  wheat  crop ;  the  Food  Administration  adopted  a 
definite  "fair  price"  for  the  1917  crop.  The  former  was 
not  to  be  effective  for  nearly  a  year,  or  until  July  1,  1918 ; 
the  latter  was  effective  from  its  announcement.  The 
former  was  framed  as  an  inducement  to  the  producer; 
the  latter  was  proposed  to  protect  both  the  consumer  and 
the  producer. 

Turning  our  attention  now,  from  these  preliminary 
considerations,  we  shall  briefly  outline  the  methods 
adopted  by  the  Food  Administration  to  maintain  the 
guaranteed  minimum  despite  factors  operating  for  its  in- 
crease or  decrease. 

The  first  step  had  already  been  taken  before  the  gov- 
ernment price  had  been  announced.  It  was  the  pro- 
clamation issued  by  President  Wilson  on  August  14,  1917 
which  required  all  stores  and  distributers  of  wheat  and 
rye  as  well  as  persons  manufacturing  products  of  wheat 
and  rye  to  procure  licenses  before  September  1.  The 
Food  Administration  had,  a  short  time  before  explained 
its  plan  to  a  representative  conference  of  100  of  the 
country's  wheat  dealers  and  received  from  them  the  as- 
surance of  support.  The  object  of  the  Administration, 


Control  of  Wheat,  Flour  and  Bread  41 

at  the  outset,  was  to  elicit  the  voluntary  cooperation  of 
these  men,  and  to  depend  as  little  as  possible  on  the 
sanction  of  the  law. 

General  regulations  applicable  to  all  licenses  became 
effective  on  November  1,  1917.  These  general  regula- 
tions included  the  furnishing  of  reports,  inspection  of 
records,  prohibition  of  unreasonable  profits,  prohibition 
of  resales  within  the  same  trade,  and  the  prohibition  of 
speculation.  In  addition  to  these  general  regulations 
from  time  to  time,  others  more  specific  were  issued. 
These  specific  rules  determined  the  miller's  profits, 
prices,  and  differentals.  The  license  of  any  miller  who 
engaged  in  unfair  practice  could  be  revoked  by  the  Food 
Administration.  By  means  of  this  devise  the  govern- 
ment could  exercise  indirect  control  over  millers  and 
grain  dealers. 

Although  a  definite  price  ($2.20  per  bushel)  had  been 
fixed,  it  must  not  be  supposed  that  this  price  was  the 
same  for  every  elevator  in  the  country.  It  would  be 
manifestly  unfair  to  compel  two  elevators  situated  at  un- 
equal distances  from  a  primary  market,  to  pay  the  same 
price  for  each  bushel  of  wheat.  The  guaranteed  price 
must  be  added  to,  in  order  to  provide  for  transportation 
costs  from  the  grain  elevator  to  the  market.  In  fact, 
there  was  nothing  in  the  food  control  act,  nor  in  the  Food 
Administration's  regulations  to  prevent  millers  from 
paying  a  higher  price  than  the  minimum  for  wheat.  It  is 
natural  to  assume  also,  that  millers  would  be  willing  to 
pay  a  higher  price  and  that  farmers  would  be  nothing 
loath  to  accept  it.  In  view  of  these  considerations,  how 
did  the  Food  Administration  effect  the  universality  of 
the  "fair  price?" 

Two  methods  were  used :  the  license  system  and  the  es- 
tablishment of  the  United  States  Grain  Corporation.  The 
license  system  at  this  period  was  little  more  than  a  form. 
It  contained  great  possibilities  for  close  supervision 
which,  were  but  vaguely  seen.  Licensees  could  and  did 
purchase  wheat  at  higher  prices  than  that  fixed  by  the 


42  Control  of  Wheat,  Flour  and  Bread 

government.  Such  action  was  not  legally  wrong ;  it  was 
simply  an  indication  of  unwillingness  to  cooperate  with 
the  Food  Administration.  With  this  loophole  in  the  li- 
cense system  it  was  necessary  to  devise  a  more  certain 
plan  of  effecting  the  guaranteed  minimum.  Thus,  was 
established  the  United  States  Grain  Corporation. 

This  corporation,  headed  by  some  of  the  country's  best 
wheat  exports,  was  organized  on  September  4,  1917 
under  the  laws  of  Delaware  with  a  capital  stock  of 
$50,000,000.  The  country  was  divided  into  fourteen 
zones,  each  of  which  had  a  representative  agent  of  the 
Grain  Corporation  whose  function  was  to  buy  wheat  at 
the  respective  terminal,  and  distribute  it  among  the 
various  mills  of  the  territory  on  the  basis  of  their  aver- 
age capacity. 

The  work  of  this  corporation  was  to  buy  all  the  avail- 
able wheat  and  rye  surplus  grown  in  America  in  1917 
and  1918*  It  determined  the  local  prices  for  wheat  at 
each  of  the  18,000  elevator  points,  adjusted  thousands  of 
complaints,  organized  the  gathering  of  statistics,  in- 
spected the  reports  handed  in  monthly  by  the  licensed 
millers,  solved  disagreements  in  the  trade  and  dealt  with 
the  purchasing  agent  of  the  Allies. 

The  two  chief  functions  of  the  United  States  Grain 
Corporation  were  (1)  the  purchase  of  wheat  for  the 
United  States,  and  (2)  the  controlling  of  the  license  sys- 
tem. The  Food  administration  had  limited  the  right  of 
the  millers  to  store  wheat  and  flour  to  a  period  not  ex- 
ceeding 30  days.  Trading  in  futures,  the  ordinary  means 
by  which  much  of  the  country's  grain  trade  is  handled, 
was  prohibited  during  the  war.  It  was  necessary  to  pro- 
vide some  means  for  the  distribution  of  wheat  to  take  the 
place  of  ordinary  market  speculation.  The  machinery 
evolved  by  the  Food  Administration  for  this  purpose  was 
the  Grain  Corporation. 

The  $2.20  per  bushel  price  provided  for  by  the  Lever 


The  Grain  Corporation  continued  its  activities  for  two  years 
after  the  termination  of  the  War. 


Control  of  Wheat,  Flour  and  Bread.  43 

Act  was  a  minimum  price,  which  might  be  raised,  and 
most  likely  would  be  raised,  by  the  President  for  the  next 
year's  crop.  During  the  early  months  of  the  year  1918 
many  attempts  were  made  in  Congress  to  increase  the 
price  of  wheat  to  $2.50  or  $2.75  a  bushel.  Senator  Gore 
introduced  a  bill  to  increase  the  price  to  $2.50  per  bushel, 
stressing  the  dilemma  that  either  the  price  of  wheat 
must  be  raised  or  the  general  level  of  other  prices  must  be 
lowered.  The  dilemma  was  stated  by  the  Senator  thus  : 
"If  the  price  fixed  by  the  Government  for  1918  is  high 
enough,  then  the  price  for  1917  was  too  high.  I  say  this 
because  the  cost  of  producing  wheat  in  1918  was  much 
greater  than  in  1917.34  The  leading  agricultural  journ- 
als were  in  accord  with  this  effort,  and  pointed  out  that 
the  farmers  were  not  receiving  a  fair  price  for  their 
wheat  in  view  of  the  prices  of  other  commodities.  The 
Non-Partisan  Leader  (St.  Paul),  the  organ  of  the  Non- 
Partisan  League  argued  that  "The  price  of  wheat  in 
comparison  with  the  increased  cost  of  farming  and  the 
general  increase  in  the  cost  of  living,  is  too  low."35 

Commenting  on  Senator  Gore's  Bill,  a  Montana  farmer 
wrote :  "Senator  Gore's  Bill  to  make  the  price  of  Wheat  at 
the  farmer's  market  is  the  fairest  proposition  I  have  yet 
seen.  The  farmers  did  their  best  to  increase  their  fall 
wheat  acreage  with  the  minimum  price  of  $2.00.  But 
our  President  steps  in  and  shatters  our  hope  of  a  price 
that  would  cover  the  cost  of  production.  Our  crops  were 
bad  enough . . .  hundreds  of  acres  were  not  cut  at  all ... 
most  the  farmers  are  made  to  sacrifice  all  they  have. . . 
while  others  grow  rich."36. 

The  opponents  of  the  Gore  Bill,  however,  argued  that 
if  the  price  of  wheat  was  advanced  to  $2.50  a  bushel 
there  would  be  an  increase  in  the  price  of  flour  of  no  less 

34  Senator   Gore,  The  Wheat   Farmers'  Dilemma,  The  Forum, 
p.  26. 

35  The  Literary  Digest,  March  16,  1918. 

36  Outlook,  April  10,  1918,  p.  572. 


44  Control  of  Wheat,  Flour  and  Bread. 

than  $3  a  barrel,  which  would  mean  an  increase  of  25  per 
cent  in  bread  prices.  Should  all  our  people,  the  oppon- 
ents asked,  be  thus  imposed  upon  by  the  farmer  class  re- 
presenting but  fifteen  per  cent  of  the  population. 

On  February  21,  1918  the  President  by  a  proclamation 
made  the  1917  wheat  price  applicable  to  the  1918  harv- 
est. By  executive  order  of  June  21,  1918  the  price  of 
wheat  was  raised  to  $2.26  per  bushel  at  Chicago,  the  6 
cent  increase  was  made  to  off-set  the  increase  in  freight 
rates.37 

The  Food  Administration,  then  announced  the  follow- 
ing "fair  prices"  for  "basic"  wheats  at  the  terminals 
designated.38 

Prices  of  "Basic  Wheat"  at  Terminals  for  1918  Crop. 

New  York  $2.39i/2  Omaha  $2.18 

Philadelphia  2.29  New  Orleans  2.28 

Baltimore  2.38%  Galveston  2.28 

Newport  News  2.38%  Tocoma  2.20 

Duluth  2.221/2  Seattle  2.20 

Minneapolis  2. 21%  Portland  2.20 

Chicago  2.26  Astoria  2.20 

St.  Louis  2.24  San  Francisco  2.20 

Kansas  City  2.18  Los  Angeles  2.20 

Basic  Wheat 

No.   1  Northern  Spring.  No.  1  Durum. 

"     1  Hard  Winter.  "     1  Hard  Wheat. 

"     1  Red  Winter. 

Varieties  of  wheat  other  than  the  "basic"  grades  were 
purchased  at  premiums  over  or  discounts  under  the 
above  prices.39 

37  U.   S.   Dept.   of   Agriculture,   Wheat   Prices    Guaranteed   by 
Congress,  p.  6. 

38  Official  statement  of  the  Food  Administration,  Aug.  22,  1918, 
p.  9. 

39  Ibid,  p.  10. 


Control  of  Wheat,  Flour  and  Bread.  45 

The  premium  wheats  were  as  follows. 

Premium 

No.  1.  Dark  Hard  Winter  2  cents. 

No.  1.  Dark  Northern  Spring  2  cents. 

No.  1.  Amber  Durum  2  cents. 

The  "Discount"  wheats  were  as  follows. 
No.l.  Yellow  Hard  Winter  2  cents. 

No.  1.  Red  Spring  5  cents. 

No.  1.  Red  Walla  7  cents. 

No.  1.  Red  Durum  7  cents. 

No.  1.  Soft  White  2  cents. 

No.  1.  White  Club  4  cents. 

Discounts  for  other  grades  than  No.  1. 
No.  2.  Wheat  3  cents  under  No.l. 
No.  3.  Wheat  7  cents  under  No.l. 

The  government's  guarantee,  public  opinion,  and  pa- 
triotism stimulated  the  production  of  wheat.  This  was 
demonstrated  by  the  increased  acreage  under  winter 
wheat.  Over  42  million  acres  of  winter  wheat  and  over 
22  million  acres  of  spring  wheat  were  planted.40  This 
was  an  increase  of  7  million  acres  over  the  prewar  aver- 
ages (1904-14).  The  normal  prewar  annual  export  of 
wheat  from  the  United  States  was  about,  on  the  average 
of  10  years  preceding  the  European  War,  110  millions 
bushels.  It  was  estimated  that  the  total  export  of  wheat 
and  flour  (in  terms  of  wheat)  of  the  1918  crop  would  be 
about  310  million  bushels.41 

The  export  trade  was  handled  by  a  separate  division 
of  the  Food  Administration  called  the  Wheat  Export 
Company.  All  orders  from  the  Allied  nations  came  to 
this  division  which  could  regulate  the  supply  of  Wheat 
products  in  accordance  with  necessity.  To  a  large  extent 
the  policy  of  the  Food  Administration  was  to  export  flour 
instead  of  wheat.  This  recommendation  was  made  by 
the  National  Federation  of  Millers.42  Export  of  wheat 

40  Department    of   Agriculture,   Wheat    Prices    Guaranteed   by 
Congress,  1918,  p.  4. 

41  Ibid,  p.  6. 

42  Report   of   i6th   Annual    Meeting  of   the   Millers,   April   12, 
1918,  p.  7- 


46  Control  of  Wheat,  Flour  and  Bread. 

products  to  countries  other  than  the  Allies  was  handled 
by  the  War  Trade  Board,  and  required  a  special  license, 
which  was  issued  by  this  body  only  after  careful  investi- 
gation. With  such  precaution  little  wheat  or  flour  was 
exported  to  countries  other  than  our  Allies. 

The  Allied  Governments  also  realized  the  advantage 
of  placing  their  purchases  in  the  hands  of  a  single  buyer. 
Competition  between  countries  and  the  agents  for  pri- 
vate concerns  would  thus  be  eliminated  and  a  more  equit- 
able distribution  could  be  secured.  This  machinery 
greatly  simplified  trade  between  the  United  States  and 
the  Allies. 

On  September  2,  1918,  the  President  by  proclamation 
fixed  the  price  of  wheat  for  the  crop  of  1919  at  $2.26  per 
bushel  at  Chicago,  and  at  the  other  markets  at  a  corres- 
ponding price.  The  differentials  established  between  the 
primary  markets  of  the  United  States  were  as  follows : 
Kansas  City  and  Omaha. 

Duluth  &  Minneapolis.  5  cents  less  than  basic. 

St.  Louis.  3       "       " 

New  Orleans  &  Galveston,  Basic  2 

Buffalo.  5  cents  less  than  basic. 

Baltimore  &  Philadelphia.  9       "       " 

New  York.  10     " 

In  his  proclamation,  the  President  stated  that  he  would 
appoint  "a  disinterested  commission  in  the  spring  of 
1919,  who  will  secure  the  facts  for  me  by  that  time  dis- 
closed as  the  prewar  average  prices  of  wheat,  of  labor, 
and  of  supply  costs  as  a  basis,  and  from  that  information 
I  shall  determine  whether  there  should  be  an  increase  in 
price  above  the  present  level ...  I  find  a  great  conflict  of 
opinion  among  various  sections  of  the  country  as  to  the 
price  that  should  be  named  as  a  minimum  guaranty.  It 
must  be  obvious  to  all,  however  that  the  factors  that 
make  for  increased  or  decreased  cost  of  production  of 
next  year's  harvest  can  not  be  determined  until  the  near 
approach  of  the  harvest"43 

43    Official  Statement  of  the  Food  Administration,  Sept.  28,  p.  2. 


Control  of  Wheat,  Flour  and  Bread.  47 

Criticism  was  again  voiced  against  the  fixed  price  of 
wheat  in  the  hopes  that  the  price  for  1919  wheat  would 
be  raised.  It  must  be  remembered  that  when  we  em- 
barked into  the  conflict  in  1917,  there  was  great  uncer- 
tainty as  to  its  duration.  As  the  struggle  continued,  the 
prevalent  opinion  in  the  United  States  and  also  in  Europe 
held  that  the  backbone  of  Germany's  defence  was  nearly 
broken  and  that  it  was  only  a  question  of  days  when 
Germany  would  be  compelled  to  quit.  Prescinding  from 
the  propaganda  element  which  doubtless  fostered  this 
opinion,  it  must  be  said  that  it  was  probable  enough  to 
enter  into  the  calculations  of  the  1919  wheat  price.  The 
Government's  wheat  guaranty  given  for  a  year  in  ad- 
vance, if  fixed  at  a  high  price  might  entail  the  loss  of 
millions  of  dollars  if  peace  was  declared  before  the 
middle  of  1920.44  The  Food  Administrator  estimated 
the  government  "Would  lose  from  $300,000,000  to 
$500,000,000  on  this  wheat  guaranty  if  peace  arrives 
before  the  1918  harvest  is  marketed."45  Should  peace  be 
declared,  Europe,  with  its  tonnage  released  from  the  ser- 
vice of  war  would  seek  wheat  from  the  large  stores  then 
in  the  Southern  Hemisphere,  for  .prices  would  be  much 
cheaper  there  than  in  the  United  States.  Despite  the 
possibility,  however,  the  production  of  wheat  must  be 
stimulated  in  any  contingency  by  a  fair  price. 

The  $2.26  price,  however,  was  retained.  In  defence, 
the  President  explained  that  a  higher  price  would  dis- 
locate the  present  wage  levels  and  thus  create  an  indus- 
trial unrest,  which  would  be  harmful  to  the  country. 

The  price  of  wheat  had  been  kept  relatively  lower  than 
the  price  of  other  foods.  The  effect  of  this  was  to  in- 
crease the  use  of  wheat,  regardless  of  the  Food  Adminis- 
tration's appeals.  By  February  1918,  an  unduly  large 
part  of  the  year's  crop  had  been  consumed. 

On  January  28,  1918,  the  "50-50"  rule  went  into  effect, 
requiring  the  purchase  of  an  equal  amount  of  other 

44  Ibid,  p.  2. 

45  Bulletin,  No.  10,  p.  g,  U.  S.  Food  Administration. 


48  Control  of  Wheat,  Flour  and  Bread. 

cereals  with  wheat  flour.  On  February  3,  bakers  were 
required  to  mix  5  per  cent  of  other  cereals  with  wheat 
flour ;  by  February  24,  the  substitute  was  increased  to  20 
per  cent,  and  in  April,  reached  25  per  cent.  These  bak- 
ing regulations,  as  well  as  the  "50-50"  rule  were  in  force, 
until  August  28,  when  the  bakers  were  placed  on  an  80 
per  cent  wheat  and  20  per  cent  substitute  basis.  All 
regulations  requiring  wheat  substitutes  were  suspended 
on  November  14.46 

The  Food  Administration  attempted,  as  has  been  seen, 
to  stablize  the  price  of  wheat.  That  it  accomplished  this, 
seems  clear  from  the  wheat  quotations  in  any  terminal 
market  from  August  30,  1917,  when  the  "fair  price"  was 
announced,  until  after  the  signing  of  the  armistice  in 
November,  1918.  The  price  of  No.  2  Red  Winter  wheat 
in  Chicago,  for  instance,  varied  only  three  fourths  of  a 
cent  from  September  1917,  to  the  end  of  June  1918.47 

FLOUR. 

The  natural  relation  between  wheat  and  flour  acts  as 
an  automatic  adjustment  on  the  market  price  of  the 
latter,  so  that  the  price  of  flour  rises  or  falls  with  the 
price  of  wheat.  Following  the  lead  of  wheat,  the  price 
of  flour  rose  quite  steadily  from  August  1914  to  Febru- 
ary 1915,  when  a  slight  drop  took  place.  In  May  of  the 
same  year  flour  prices  took  a  great  ascent,  partly  because 
of  an  increase  in  European  demand  and  partly  because 
of  the  periodic  rise  at  this  time  of  the  year.  Soon  after- 
ward, owing  to  the  opening  up  of  the  Dardanelles  the 
price  of  wheat  fell  and  was  followed  by  a  corresponding 
drop  in  the  price  of  flour.  European  demand  had  de- 
creased temporarily  in  the  hope  of  being  able  to  purchase 
at  lower  prices.  During  the  remainder  of  1915  and 
almost  throughout  1916,  flour  prices  remained  stable. 

46  Official   Statement   of  the  United   States   Food   Administra- 
tion, Dec.  i,  1918,  p.  7. 

47  Wheat  &  Wheat  Products,  War  Industries  Bulletin  No.  10, 
p.  6. 


Control  of  Wheat,  Flour  and  Bread.  49 

Toward  the  latter  part  of  the  year,  1916,  however,  an 
acute  shortage  in  the  wheat  supply  was  felt,  which 
caused  a  rise  in  the  prices  of  both  wheat  and  flour.  With 
the  declaration  of  war  by  the  United  States,  the  price 
rose  from  $11.62  a  barrel  in  April  to  $14.88  in  May,  and 
fell  to  $13.07  in  August.  This  decline  was  occasioned 
by  the  apprehension  of  Government  control.  In  Septem- 
ber after  Government  control  had  been  established,  the 
price  dropped  to  $11.26,  and  in  December  was  found  at 
$10.00,  around  which  price  it  remained  till  the  first 
half  of  1918. 

That  the  abnormal  increase  in  the  price  of  flour  was 
not  entirely  due  to  shortage  of  wheat  may  be  seen  from 
the  report  of  the  Federal  Trade  Commission,  in  its  in- 
vestigation on  the  profits  of  millers  and  jobbers.  It 
found  that  jobbers  had  increased  the  average  gross  pro- 
fit per  barrel  (of  car  lot)  from  28  cents  in  1916  to  54.5 
cents  in  the  first  half  of  1917 ;  that  expenses  exclusive  of 
salaries,  increased  only  from  10  cents  to  13.5  cents ;  that 
net  profits  showed  an  increase  from  18  cents  to  41  cents 
and  that  the  rate  of  profit  on  investment  showed  an  in- 
crease of  from  31.5  per  cent  to  60.7  per  cent.48  It  was 
likewise  found  that  the  profits  of  millers  had  increased 
from  11  cents  per  barrel  in  1912-13  to  52  cents  per  bar- 
rel in  1916-17. 

These  conditions  seemed  to  point  to  the  need  for  Gov- 
ernment regulation.  The  Food  Administration  took 
the  situation  in  hand  and  under  the  license  system  de- 
vised a  method  of  not  only  controlling  the  wheat  market 
but  also  the  flour  market.  Congress  had  not  fixed  a  price 
for  flour,  and  the  Food  Administration  took  the  stand 
that  it  had  no  authority  to  fix  prices  for  the  same.  It 
exercised  control,  nevertheless,  by  means  of  the  license 
system.  Control  of  the  flour  trade  was  given  over  to  the 
Milling  Division  of  the  Food  Administration.  This  Di- 
vision divided  the  country  into  nine  zones  and  over  each 
zone  placed  a  representative  agent.  Millers  and  dis- 

48    Report  of  the  Federal  Trade  Commission  on  Milling  &  Job- 
bing, 1918,  p.  7. 


50  Control  of  Wheat,  Flour  and  Bread. 

tributers  were  required  by  a  proclamation  of  the  Presi- 
dent's on  August  14,  1917  to  procure  licenses  in  order  to 
do  business.  The  voluntary  agreements  made  in  regard 
to  .the  wheat  trade  also  applied  to  the  milling  industry. 
The  regulations  in  force  for  the  wheat  trade  were  like- 
wise applied  to  the  flour  trade.  The  only  addition  was  a 
limitation  of  25  cents  profit  on  each  barrel  of  flour. 

Considerable  difficulty  was  experienced  by  the  Food 
Administration  in  arriving  at  a  satisfactory  cost  method. 
In  the  monthly  reports  that  each  miller  must  submit,  the 
cost  of  production  must  be  set  forth  as  a  basis  for  the  de- 
termining of  profits.  In  its  report,  the  Federal  Trade 
Commission  objected  to  the  cost  of  production  plus  the 
allowed  profit  on  the  ground  that  it  offered  a  temptation 
to  falsify  reports.  It  was  to  be  expected  that  the  Food 
Administration  could  not  examine  and  verify  each  report 
from  thousands  of  millers  throughout  the  country.  The 
Federal  Trade  Commission  had  found  evidence  of  padded 
reports,  and  the  establishment  of  jobbing  departments 
in  some  mills  in  order  to  get  both  a  miller's  and  a  jobber's 
profit  on  their  product. 

These  difficulties  probably  led  to  a  change  of  policy  in 
the  Spring  of  1918.  Voluntary  agreements  were  can- 
celled.49 The  Milling  Division  of  the  Food  Administra- 
tion went  out  of  existence  on  June  30,  1918.  "Fair 
price"  schedules  then,  were  sent  to  each  one  of  the  8,500 
mills  in  the  country.  These  schedules  relieved  the  mills 
of  the  trouble  of  calculating  prices.  The  plan  of  control 
included:  (a)  price  of  bulk  flour  and  feeds,  at  every  pro- 
ducing point  in  the  United  States,  (b)  The  price  of  flour 
was  based  on  the  Government  guaranteed  fair  price  for 
wheat,  (c)  These  prices  were  on  the  basis  of  carload 
sales,  bulk  at  mill;  the  "fair  price"  list  ranged  from 
$10.65  per  barrel  at  Boston  to  $9.75  at  Salem,  Oregon.50 

The  bulk  flour  price  for  each  mill  was  arrived  at  by 
taking  the  "fair  price  of  wheat  at  the  nearest  terminal, 

49  Official  Statement  of  the  Food  Administration,  Sept.  12,  1918. 
P.  7. 

50  Ibid.,  p.  II. 


Control  of  Wheat,  Flour  and  Bread.  51 

plus  freight  to  the  mill  plus  $1.10,  called  a  conversion 
charge  (to  cover  the  cost  of  milling  and  profit),  minus 
the  feed  return."51  The  miller  was  guided  in  determin- 
ing the  price  of  any  sale  by  a  table  of  "maximum  permis- 
sable  margins"  which  showed  him  the  amount  he  could 
add  on  certain  sales.  A  table  like  the  following  was 
made  out. 

Method  of  calculating  maximum,  delivered  fair  price 
flour  per  barrel. 

(a)  Maximum  fair  price  bulk  mill  as  per  schedule 

No.  000 $10.50 

(b)  Maximum  differential,  if  any  on  sale  of  class 

C* *       .25 

(c)  Freight  charge  (including  freight  tax) 40 

(d)  Cost  of  sacks 60 


Total $11.75 

All  sales  contracts  must  be  copied  and  sent  with  the 
fair  price  for  the  particular  mill  to  the  Food  Administra- 
tion. These  new  regulations  simplified  the  flour  control 
problem  and  protected  buyers  against  the  possibility  of 
unjust  prices. 

On  January  1,  1918  the  quantity  of  wheat  which  mill- 
ers were  allowed  to  use  for  a  barrel  of  flour  was  reduced 
from  285  pounds  to  264  pounds.  Two  months  later,  only 
one  grade  of  flour  was  permitted  to  be  milled.  On  Sep- 
tember 1,  1918,  regulations  providing  for  the  prepara- 
tion and  marketing  of  a  mixed  flour  called  "Victory 
Flour"  were  enforced.  The  purpose  of  these  regulations 
was  to  place  the  country  on  a  mixed  flour  basis,  without 
making  it  necessary  for  retailers  to  make  combination 
sales  of  flour  and  substitutes.  Mixed  Wheat,  and  barley 
flour  was  in  the  proportion  of  4  pounds  of  wheat  to  1 
pound  of  barley  flour.  Mixed  wheat  and  corn  flour  was 
to  be  sold  in  proportion  of  4  pounds  of  wheat  flour  to  1 
pound  of  corn  flour.  Wheat,  barley,  and  corn  flour  were 
mixed  in  proportions  of  8  pounds  of  wheat  flour  to  1 

51     Government  Control  over  Prices,  Bull.  No.  3,  p.  71. 

*  Class  C  included  sales  of  consigned  flour  to  wholesale  dealers 
from  cars  or  docks;  in  carload  lots  (not  delivered)  25  cents  per 
barrel  over  basis. 


52  Control  of  Wheat,  Flour  and  Bread. 

pound  of  barley  and  1  pound  of  corn  flour.  With  the  en- 
forcement of  these  regulations  the  "50-50"  rule  was 
superceded.52 

The  Presidential  Proclamation  of  October  1,  1917,  be- 
fore referred  to  applied  also  wholesalers  and  retailers. 
Profits  were  controlled  by  means  of  margins  established 
by  the  Food  Administration.  The  general  rule  was  that 
profits  should  not  exceed  a  greater  percentage  than  that 
of  the  prewar  period.  To  prevent  resales  to  wholesalers, 
flour  was  required  to  be  kept  moving  in  a  direct  line  and 
without  any  unreasonable  delays.  Hoarding  and  specu- 
lation were  prevented  by  limiting  licensees  to  a  30  days 
supply. 

BREAD. 

By  the  Presidential  Proclamation  of  November  7, 
1917,  bakers,  and  all  "firms,  corporations  and  associa- 
tions, who  manufacture  for  sale  bread  in  any  form,  cake, 
crackers,  biscuits,  pastry  or  other  bakery  products  (ex- 
cepting, however  those  already  licensed  and  those  whose 
consumption  of  any  flour  and  meal  In  the  manufacture 
of  such  is,  in  the  aggregate,  less  than  10  barrels  a 
month)  are  hereby  required  to  procure  a  license  on  or 
before  February  4,  1918."53  This  regulation  included 
hotels,  restaurants,  and  clubs  which  served  bread  or 
other  bakery  products  of  their  own  baking. 

Another  proclamation  dated  January  30,  1918  was 
worded  in  the  same  manner  but  extended  the  license 
regulation  to  those  dealers  whose  monthly  consumption 
was  3  barrels  or  over.54 

Bakers  using  less  than  a  barrel  a  month  could  obtain  a 
license  and  subject  themselves  to  the  same  regulations 
as  those  who  were  included  in  the  license  proclamation. 
By  doing  such,  these  bakers  were  enabled  to  purchase 
wheat  flour  on  the  basis  of  one  pound  for  every  three 


52  Official  Statement  of  Food  Administration,  Sept.  12,  1918,  p.  5- 

53  Proclamations  and  Executive  Orders  by  the  President  Under 
the  Food  Control  Act,  1918,  p.  8. 

54  Ibid.,  p.  13.  


Control  of  Wheat,  Flour  and  Bread.  53 

pounds  of  wheat  substitutes. 

In  its  general  information  to  bakers  the  Food  Admin- 
istration announced  that  it  had  no  intention  of  fixing 
prices  at  which  bakery  products  must  be  sold,  but  re- 
quired that  the  prices  of  these  articles  be  fair  and  that 
the  profits  of  the  trade  be  reasonable. 

The  Baking  Division  of  the  Food  Administration  took 
the  initial  step  in  control  when  it  ordered  the  standard- 
ization of  the  baker's  loaf.  Previous  to  this  time  there 
had  been  as  many  as  38  different  weights  to  bread 
loaves.55  Now  the  minimum  bread  loaf  was  to  be  one 
pound;  loaves  of  one  and  a  half,  two  and  four  pounds 
were  also  allowed.  The  object  of  this  regulation  was  to 
reduce  the  waste  of  flour  and  to  limit  the  use  of  sugar 
and  lard."56 

No  more  than  three  pounds  of  sugar  could  be  used  with 
each  barrel  of  flour.  Before  this  regulation  was  made, 
the  average  amount  of  sugar  to  a  barrel  of  flour  had  been 
6  pounds.  The  reduction  of  3  pounds  of  sugar  on  each 
barrel  would  effect  a  saving  of  100,000,000  pounds  of 
sugar  in  a  year. 

Shortening  was  restricted  to  2  pounds  per  barrel, 
whereas  previously  6  pounds  could  be  used.  The  lard 
saved  by  this  regulation  would  amount  to  100,000,000 
pounds  a  year. 

During  August  1918,  no  licensed  baker  could  use  in  the 
manufacture  of  his  products  except  bread  and  rolls  more 
than  70  per  cent  of  the  amount  of  wheat  used  the  previous 
month.  Wheat  flour  substitutes  were  defined  as  bran, 
shorts,  and  middlings,  corn  flour,  corn  meal,  hominy, 
corn  grits,  barley  flour,  oats,  oatmeal,  rice,  rice  flour 
potato  flour  and  other  products  of  a  similar  nature.  Rye 
flour  was  named  as  a  partial  substitute  of  wheat  on  the 
following  basis :  One  fifth  of  the  wheat  flour  substitutes 
used  in  any  mixture  may  be  rye  flour  and  rye  meal. 

To  prevent  waste  in  wheat  flour  and  its  substitutes  no 
baker  was  allowed  to  accept  unsold  bakery  products,  or 

55  The  United  States  Food  Administration,  Bull.  No.  II,  p.  2. 

56  Ibid.,  p.  3- 


54  Control  of  Wheat,  Flour  and  Bread. 

take  them  in  exchange  for  fresher  supplies.  The  "cash 
and  carry  system,"  as  a  means  of  reducing  the  cost 
charges  and  the  ultimate  price  to  the  consumer  was  re- 
commended by  the  Food  Administration.  No  baker  was 
allowed  to  keep  on  hand  stocks  of  wheat,  flour,  sugar  or 
shortening  in  excess  of  the  reasonable  requirements  of 
his  business  for  over  60  days. 

The  Baking  division  prescribed  as  a  patriotic  measure 
the  making  and  sale  of  products  with  20  per  cent  or  more 
of  wheat  flour  substitutes  called  "Victory  Bread,"  "Vic- 
tory Cake,"  etc.  All  Victory  products  must  contain  this 
amount  of  wheat  substitutes,  with  the  exception  of  bread 
and  rolls  the  requirement  for  which  was  25  per  cent. 

There  was  a  popular  demand  during  the  early  stages 
of  the  bread  control  for  a  five  cent  loaf.  Such  a  loaf  was 
not  considered  economical  by  the  Food  Administration, 
as  it  would  cost  just  as  much  to  deliver  as  a  larger  loaf, 
and  would  have  relatively  lesser  weight.57 

Public  eating  places  were  required  to  serve  no  more 
than  2  ounces  of  any  kind  of  wheat  bread  or  rolls,  nor 
more  than  4  ounces  of  muffins,  corn  bread,  or  biscuits  to 
any  person.  The  maximum  weight  for  rolls  was  2 
ounces.-58  Simultaneously  with  all  these  regulations,  food 
conservation  measures,  such  as  wheatless  meals  and 
wheatless  days  were  urged  upon  the  public.  Attractive 
posters  met  the  public  eye  at  every  street  corner,  in 
every  street  car,  in  public  buildings  and  everywhere  de- 
manded attention.  Four  minute  speakers  travelled  the 
country  and  addressed  multitudes  of  workers  during  the 
noon  hour,  and  in  halls  and  assemblies  at  night.  The 
services  of  policemen  were  enlisted  to  make  a  house  to 
house  canvass  among  the  housewives  to  obtain  pledges 
of  conservation.  The  necessity  of  retrenchment  was  the 
subject  of  several  letters  from  the  Food  Administrator  to 
the  church-going  population.  These  letters  were  read 
from  nearly  every  pulpit  in  the  United  States. 

The  average  retail  price  of  bread  rose  from  its  custom- 

57  Food  Administration,  Bull.  10,  p.  4. 

58  Food  Administration,  Bull,  n,  p.  7. 


Control  of  Wheat,  Flour  and  Bread.  55 

ary  level  of  5  cents  per  loaf  to  6.4  cent  on  November  15, 
1914.  In  November  1915,  the  price  advanced  to  7  cents ; 
in  1916.  to  8.4  cents ;  in  1917,  to  9  cents ;  and  in  1918  to 
9.8  cents.59  Government  control  seems  to  have  curbed 
the  price  of  bread  to  some  extent.  Compared  with  the 
price  level  of  the  six  months  preceding  Government  con- 
trol, there  was  but  a  three  per  cent  rise  in  the  price  of 
bread  during  the  war.  After  the  regulation  of  the  Food 
Administration  was  removed  about  January  1,  1919,  the 
price  of  bread  advanced  to  8.5  cents,  or  an  increase  of  11 
per  cent  over  its  prewar  average. 

On  September  20,  1918,  retail  prices  for  bread  were 
established  by  the  Baking  Division.  The  maximum  price 
for  "cash  and  carry,"  or  credit  and  delivery  was  10  cents 
for  one  pound  loaf  and  15  cents  for  one  pound  and  a  half 
loaf."60 


59  U.  S.  Food  Administration,  Bull.  No.  11,  p.  7. 

60  Official  Statement  of  Food  Administration,  Oct.  I,  1918,  p.  17. 


CHAPTER  IV. 


CONTROL  OF  SUGAR. 


Of  all  the  problems  confronting  the  Food  Administra- 
tion, that  of  the  sugar  shortage  of  1917  and  1918,  was 
perhaps  the  most  complicated.  In  order  to  understand 
the  world  sugar  situation  during  this  period,  it  is 
necessary  to  bear  in  mind  four  factors,  each  of  which 
contributed  in  a  measure  to  produce  and  at  the  same  time 
complicate  the  situation. 

First,  we  must  remember  that  the  United  States, 
Canada  and  England  were  sugar  importing  countries  be- 
fore the  war,  while  France  and  Italy  were  very  nearly 
self-supporting.  Secondly,  that  the  main  sources  of  sup- 
plies to  importing  countries  were  (1)  Germany  and 
neighboring  powers.  (2)  The  West  Indies,  (3)  The  East 
Indies.  Thirdly,  that  the  German  sources  were  entirely 
cut  off;  though  she  still  had  access  to  sugar  of  the  sur- 
rounding countries.  Fourthly,  the  loss  of  tonnage  pro- 
duced a  shortage  of  vessels,  which  rendered  long  hauls 
almost  impossible. 

The  best  fields  of  Belgium,  France,  Germany  and 
Austria,  suffered  from  the  ravages  of  war.  Workmen 
were  taken  from  the  sugar  factories  and  the  production 
of  sugar  was  seriously  curtailed.  European  beet  sugar 
production  including  that  of  Germany  decreased  from 
8,243,165  tons  in  1913-14  to  3,849,000  tons  in  1917-18. 
On  the  other  hand,  the  total  cane  sugar  production  in- 
creased from  9,839,919  tons  to  12,070,000  tons  during 
the  same  period.61 

61     New  York  Coffee  &  Sugar  Exchange,  Dec.  7, 

56 


Control  of  Sugar.  57 

The  following  table  shows  the  estimates  of  the  world's 
sugar  crop.62 

Total  Cane  Sugar  production,    (Willet  &  Gray  Estim- 
ated) 

1917-18  1916-17  1915-16 

12,070,000  11,233,794  10,385,523 

European  Beet  Sugar  production.   (Willet  &  Gray  Es- 
timated) 

3,849,000  4,555,407  5,209,233 

U.  S.  Beet  Sugar  production  (Willet  &  Gray  Estimated) 

975,000  734,577  779,756 

Grand  total  of  cane  and  beet  sugar 

16,794,000  16,523,000  16,574,577 

1914-15  1913-14. 

10,216,654  9,839,919 

7,583,215  8,243,165 

646,257  655,298 


18,446,126  18,732,382 

As  will  be  seen  from  the  table  given  above,  the  world 
sugar  situation  was  not  due  entirely  to  decreased  pro- 
duction. The  sugar  shortage  did  not  begin  to  exist  till 
the  early  part  of  1917.  If  we  compare  the  estimates  of 
the  total  production  for  the  two  preceding  years  with 
that  for  1917-18,  we  are  forced  to  conclude  that  despite 
decreased  production  in  Europe,  no  appreciable  effect 
was  felt  in  the  world  supply. 

On  the  other  hand,  sugar  consumption  during  the  war 
might  well  be  expected  to  have  increased.  It  has  been 
found  that  soldiers  under  the  strain  and  severity  of  war- 
fare and  encampment  have  an  abnormal  craving  for 
sweets.  To  what  extent  this  craving  was  appeased  we 
can  not  determine  exactly,  but  in  general  it  may  be  as- 
sumed that  an  increased  consumption  of  sugar  would  ob- 
tain among  soldiers.  It  is  to  be  expected  likewise  that 
sugar  would  be  used  more  extensively  also  by  those  en- 
gaged in  other  laborious  occupations.  Thus,  in  the 
United  States  during  the  first  six  months  of  1917,  the 

62    Ibid.,  p.  6. 


58  Control  of  Sugar. 

consumption  of  sugar  increased  10.7  per  cent;63  the  in- 
crease for  the  entire  year  over  the  preceding  year  was 
5  per  cent.  This  increase  in  consumption,  was  due  in 
part  to  a  great  activity  in  the  home  canning  of  fruits,  and 
vegetables  in  accordance  with  the  propaganda  of  the 
Food  Administration,  and  in  part  also  to  the  fact  that 
there  had  been  sugar  left  over  from  the  1916  crop.64 

The  per  capital  consumption  of  sugar  in  the  United 
States  during  the  years  1910-1917  was  as  follows  :65 

1910  81.6  pounds          1914     84.29  pounds 

1911  79.2         "  1915     83.83 

1912  81.3         "  1916     79.34 

1913  85.4  1917     84.35 

We  can  arrive  at  the  consumption  figures  of  the  Allies 
during  this  period  by  knowing  first  of  all  how  much 
sugar  each  country  produced,  and  finding  how  much  was 
imported  from  other  countries.  Great  Britain  before  the 
war  produced  no  sugar  herself,  but  imported  about  80 
per  cent  of  her  requirements  from  Germany  and 
Austria ;  cut  off  from  this  source  of  supply,  she  early  en- 
tered the  Cuban  market  with  orders  for  large  quantities. 
France  produced  about  228.000  tons  of  beet  sugar  in 
1916-17,  while  Belgium's  crop  was  about  149,000  tons.66 
The  following  tables  shows  the  imports  into  the  United 
Kingdom,  France,  and  Italy  from  the  United  States  and 
Cuba. 
Exports  of  Sugar  (mostly  refined)  from  United  States 

to  Allied  Countries ;  1914-17. 

1914  1915  1916  1917 

United  Kingdom  141,602  211,346  187,803  42,534 
France  978  210,648  275,644  232,726 

Italy  32,830       20,962 

142,580       421,994       496,277     296,222 

63  Daily  Sugar  Journal,  Willet  &  Gray,  July  5,  1917,  p.  5. 

64  Ibid.,  Jan.  10,  1917,  p.  6. 

65  Ibid.,  Jan.  10,  1917,  p.  6. 

66  Official  Statement  of  the  Food  Administration,  Dec.  I,  1918, 
p.  10. 


Control  of  Sugar.  59 

Exports  of  Sugar    (mostly  raw)    from  Cuba  to  Allied 
Countries  1914-17. 

1914  1915             1916             1917 

United  Kingdom  293,290  402,915       619,992     789,032 

France                      37,636  6,811       120,196       61,243 

Italy  6,285         3,823 

330,926       409,716       746,473     854,098 

Early  in  1917,  the  sugar  shortage  began  to  be  felt  in 

Europe.*    By  necessity,  these  countries  were  placed  on  a 

*  In  Great  Britain,  for  example,  the  sugar  situation  had  as- 
sumed such  gravity  that  in  January,  1916,  the  Royal  Commission, 
in  order  to  check  consumption  advanced  the  price  from  3^  d.  per 
pound  retail  to  4  d.,  and  in  February  issued  an  appeal  for  con- 
servation to  the  public.  Not  finding  any  decrease  in  consumption 
the  Government  at  the  end  of  Fe_bruary  raised  the  price  again 
to  4&  d. 

Such  efforts  were  only  in  part  successful.  The  consumption  in 
1916  was  but  15  per  cent  less  than  that  of  1915  and  19  per  cent  less 
than  in  1914.  (Financial  and  Commercial  Review,  Jan.  19,  1917,  p. 
13).  A  system  of  rationing  which  allowed  to  the  manufacturer 
and  confectioner  all  the  sugar  he  needed,  while  the  consumer  was 
obliged  to  go  unsatisfied  resulted  in  great  inconvenience  but  lit- 
tle retrenchment.  (Manchester  Guardian,  Sept.  2,  1916,  p.  5).  Re- 
fined sugar,  whether  that  imported  by  the  Government  or  that 
turned  put  by  British  refiners,  was  apportioned  to  wholesale 
dealers  in  proportion  to  the  amount  of  their  purchase  in  1915.  The 
wholesalers  distributed  to  the  retailers  on  the  same  principle,  and 
the  latter  in  turn  were  expected,  to  sell  to  their  customers  as 
equitably  as  possible.  This  system  of  apportionment  was  pro- 
ductive of  much  unfairness,  for  well-to-do  customers,  in  spite  of 
regulations  succeeded  in  getting  more  than  their  relative  share 
of  the  allowance.  (New  Stateman,  March  10,  1917,  p.  533).  These 
defects  were  brought  home  to  the  government  by  numerous  com- 
plaints, and  early  in  1916  remedies  were  sought. 

On  January  n,  1917,  an  order  issued  by  the  Food  Controller 
prescribed  that  no  manufacturer  of  sugar  confectionery  might  use 
more  than  50  per  cent  of  the  sugar  used  by  him  during  corre- 
sponding periods  of  1915.  Two  months  later  this  ration  was  re- 
duced to  40  per  cent,  and  later  to  25  per  cent  of  the  amounts  used 
in  1915.  (Defense  of  the  Realm  Manual  34  ed.,  p.  244,421). 

Many  retail  grocers  adopted  the  course  of  supplying  sugar  only 
to  those  persons  who  bought  other  specific  commodities.  Despite 
the  government's  insistence  that  the  fixed  price  be  adhered  to, 
the  public  found  that  these  conditioned  sales  were  just  as  ex- 
pensive  as  if  the  grocers  were  permitted  to  sell  sugar  for  what 
it  would  fetch.  Since  no  definite  rationing  system  for  consumers 
was  adopted  consumers  did  not  see  why  retailers  should  not  sell 
them  whatever  amount  they  asked  for.  It  became  necessary  at 
last  to  issue  sugar  registration  cards,  which  might  be  deposited 
with  any  retailer.  These  registration  cards  entitled  each  holder 
to  a  weekly  allowance  of  sugar  proportionate  to  the  general  stocks 
in  Great  Britain  at  the  time. 

The  amount  of  sugar  allowed  to  each  person  in  England  was 
about  two  pounds  per  month.  France  was  compelled  to  reduce 
her  sugar  rations  to  only  a  little  over  one  pound  per  month. 


60  Control  of  Sugar. 

sugar  ration  basis.  Our  exports  of  refined  sugars  to  the 
Allies  decreased  from  496,277  tons  in  1916  to  292,222 
tons  in  1917 — a  decrease  that  was  partly  compensated 
for  by  importations  of  Cuban  raws.67  From  the  above 
table,  it  may  be  seen  that  the  total  amount  of  sugar,  raw 
and  refined,  exported  from  the  United  States  and  Cuba, 
to  the  United  Kingdom,  France  and  Italy  in  1916  was 
1,242,740  tons  as  against  1,150,320  tons  in  1917.  These 
same  countries  had  need  of  only  473,506  tons  in  1916. 
The  difference  between  the  amount  for  1917  and  that  of 
1914  indicates  the  dependence  of  these  countries  in  1917 
upon  Cuban  and  American  sugars. 

Exports  from  Cuba  in  1912-13  to  the  United  States 
were  85  per  cent  of  her  total  production  while  Great 
Britain  received  11  per  cent;  but  by  1916  the  situation 
had  so  changed  that  26  per  cent  of  the  Island's  total  pro- 
duction of  sugar  went  to  the  United  Kingdom  and  the 
continent  and  only  70  per  cent  came  to  the  United 
States.68 

Another  cause  of  the  American  and  European  sugar 
shortage  in  1917  was  the  great  destruction  of  tonnage, 
and  the  consequent  lack  of  shipping  facilities  to  trans- 
port sugar  from  Java.  Previous  to  the  war,  the  United 
States  obtained  large  quantities  of  raw  sugar  from  the 
Dutch  East  Indies,  and  in  certain  prewar  years  had  im- 
ported as  much  as  400,000  tons  from  that  source.  From 
August,  1914,  this  country  imported  practically  no  raw 
sugar  from  there.  Great  Britain  likewise  imported  no 
raw  sugar  from  Java  during  this  period.  The  shortage 
might  certainly  have  been  relieved  had  ships  been  avail- 
able to  make  the  long  haul  from  Java.  It  was  estimated 
that  in  December  1917,  Java  alone  had  over  900,000  tons 
of  sugar  available  for  export.69  The  United  States  Food 
Administration  endeavored  to  obtain  shipping  to  send 
there,  but  the  Shipping  Board  could  not  provide  ships 
for  this  purpose  for  obviously  it  would  have  been  detri- 

67  Hearings  on  Sugar  Shortage,  Dec.  1917,  p.  1036. 

68  Conditions    in   the   Sugar   Market,    1917,   American   Refining 
Co.,  p.  13. 

69  Hearings  on  the  Shortage  of  Sugar,  p.  n. 


Control  of  Sugar.  61 

mental  to  the  war  aims  of  the  country  to  send  ships  to 
Java  when  there  wias  insufficient  tonnage  for  more 
essential  purposes. 

In  his  testimony  before  the  Senate  Sub-committee  in- 
vestigation of  the  shortage  of  sugar,  Mr.  Hoover  de- 
clared that  the  problem  was  fundamentally  one  of  ton- 
nage.70 

Earlier  in  this  chapter  mention  was  made  of  the  in- 
creased consumption  in  the  United  States  especially  dur- 
ing the  first  half  of  the  year  1917.  There  is  reason  to 
believe  that  much  of  this  consumption  was  nothing  more 
that  hoarding  on  the  part  of  consumers.  During  the  first 
three  months  of  the  year  strikes  at  the  eastern  refineries 
were  given  publicity  by  the  newspapers;  and  rumors  of 
famine  reacted  upon  the  fears  of  housewives  to  such  an 
extent  that  "future"  buying  was  the  order  of  the  day.71 
The  increased  consumption  in  the  latter  half  of  the  year, 
was  due  to  the  active  response  of  housewives  to  Presi- 
dent Wilson's  appeal  to  "secure  the  conservation  of  sur- 
pluses of  perishable  food  products."  The  Food  Adminis- 
tration undertook  an  educational  campaign  for  the  con- 
serving of  surplus  food  stocks;  newspapers,  periodicals 
and  publications  aided  this  propaganda,  and  indicated 
ways  and  means  of  preserving  and  canning. 

The  heavy  buying  of  Cuban  raws  by  the  Royal  Com- 
missions of  Great  Britain  was  accelerated  about  the 
middle  of  1917  by  the  introduction  of  a  bill  into  Congress 
providing  for  a  repeal  of  the  drawback  privilege  on 
sugar.  Besides  this,  an  excise  tax  of  1^  cent  a  pound  on 
sugar  for  export  as  well  as  for  domestic  consumption 
was  also  advocated.  Enacted  as  law,  these  recommenda- 
tions would  have  meant  an  increase  in  the  export  price 
of  refined  sugar  of  over  11/2  cents  per  pound.  The  Allied 
countries,  seeking  the  cheapest  market,  were  thus  forced 
into  competition  with  the  United  States  for  Cuban  cane. 
A  public  statement  issued  by  the  Food  Administration 

70  Ibid.,  pp.  549-705. 

71  Conditions  in  the  Sugar  Market  in  1917.    American  Ref.  Co., 
1917,  p.  15. 


62  Control  of  Sugar. 

observed  the  effect  of  this  contemplated  procedure  by 
Congress  to  be  a  "violent  speculation  in  Cuban  sugars," 
that  caused  the  price  to  advance  from  $6.77  (per  hun- 
dred Ibs.)  in  the  last  week  in  June  to  $7.77  the  first  week 
in  August."72 

It  was  to  be  expected  that  these  causes  of  the  sugar 
shortage  would  send  prices  skyward.  The  duty-paid, 
net  cash  price  for  raw  sugar  at  New  York  increased 
steadily,  with  hardly  a  drop,  from  $5.89  per  hundred 
pounds  on  June  1,  1917  to  $7.52  per  hundred  pounds  on 
August  7,  1917.  The  following  table  shows  the  changes 
in  the  price  of  raw  sugar  for  the  years  1913-1917  during 
the  period  of  June  1  to  August  7. 

Prices  of  Raw  Sugar  in  Cents  (duty  paid  at  New  York). 
1913         1914         1915         1916         1917 
June  1  3.33         3.38         4.95         6.33         5.89 

July  1  3.48         3.32         4.95         6.40         6.52 

August  1  3.65         3.45         4.64         6.21         6.52 

August  7  3.73         3.26         4.33         5.75         7.52 

On  August  10,  Mr.  Hoover  was  appointed  Food  Ad- 
ministrator. Acting  under  the  powers  conferred  by  the 
Food  Control  Bill,  he  soon  organized  the  Sugar  Division 
Administration  over  which  he  placed  Mr.  George  M. 
Ralph.  Not  possessing  the  power  to  fix  the  price  of 
sugar  directly,  the  Food  Administration  relied  upon  the 
license  system  to  gain  control  of  the  sugar  industry.  In 
accordance  with  Presidential  Proclamation  all  importers, 
manufacturers  and  refiners  of  sugar,  sugar-sirups  and 
molasses  were  obliged  to  secure  licenses  in  order  to  carry 
on  their  business.73  By  October  1,  virtually  the  entire 
sugar  industry  was  brought  under  control.  Another  im- 
portant step  was  the  suspension  of  all  trading  in  sugar 
futures  on  the  New  York  Coffee  and  Sugar  Exchange.  A 
third  step  was  the  extension  of  the  export  control  of  the 

72  Official  Statement  of  the  U.  S.  Food  Administration,  Sept. 
30,  1917,  p.  5. 

73  Proclamations  and  Executive  Orders  by  the  President.  U.  S.. 
Food  Administration,  1918,  pp.  6  &  7.  • 


Control  of  Sugar.  63 

War  Trade  Board  to  include  sugar;  permission  for  each 
exportation  of  sugar  was  required  by  this  Board. 

The  rise  in  the  price  of  Cuban  sugar  due  to  the  causes 
already  noted,  produced  a  parallel  rise  in  domestic  beet 
sugars.  Early  in  September  beet  sugar  was  sold  in  New 
York  at  8*4  cents  per  pound  wholesale,  and  brought 
from  12  to  16  cents  per  pound  retail.  At  the  request  of 
Mr.  Hoover,  a  representative  body  of  beet  sugar  produc- 
ers met  in  Washington  during  the  week  ending  August 
26,  to  come  to  an  agreement  upon  the  price  of  beet  sugar. 
After  much  discussion,  the  representatives  of  the  beet  in- 
dustry agreed  with  the  Food  Administration  to  charge 
not  more  than  $7.25  per  100  pounds,  New  York's  basis, 
for  their  entire  1917  output.  An  agreement  was  also 
reached  with  the  Louisiana  producers,  limiting  the  price 
of  the  product  to  $7.80  per  hundred  pounds.74 

In  October,  1917,  the  sugar  refiners  came  to  Washing- 
ton at  the  request  of  Mr.  Hoover,  for  the  purpose  of 
agreeing  upon  a  definite  margin  of  profit.  As  was  the 
case  with  many  of  these  voluntary  agreements  between 
the  Food  Administration  and  the  trade,  much  discussion 
over  costs  real  and  imaginary  took  place.  Some  refiners 
would  place  the  margin  as  high  as  $1.60  per  hundred 
pounds,  but  these,  it  appears,  were  in  the  weak  minor- 
ity. The  figure  was  finally  placed  at  $1.30  per  hundred 
pounds.75 

Another  important  step  in  the  process  of  sugar  control 
was  the  establishment,  on  September  21,  1917,  of  the  In- 
ternational Sugar  Committee.  The  regulation  of  the 
domestic  beet  and  cane  sugar  industry  affected  less  than 
one  half  of  the  entire  trade.  It  would  be  futile  to  at- 
tempt to  stabilize  prices  without  taking  into  account 
prices  for  Cuban  cane.  Taking  advantage  of  the  world- 
wide shortage  and  the  competitive  buying  between  the 
United  States  and  the  Allies,  the  Cuban  planters  had 
already  lifted  their  prices  for  the  remainder  of  the  1917 
crop. 

74  "Sugar,"  Sept.,  1917,  p.  337. 

75  "Sugar,"  Sept.,  1917,  p.  337- 


64  Control  of  Sugar. 

In  order  to  deal  with  this  situation  more  effectively  the 
International  Sugar  Committee  made  up  of  representa- 
tives of  the  United  States,  England,  Italy  and  Canada 
was  formed.  The  main  purposes  of  this  organization 
were  to  purchase  from  the  Cuban  growers  sugar  at  uni- 
form and  agreed  prices ;  to  make  allotments  of  these  pur- 
chases to  the  various  countries,  and  also  to  distribute 
that  portion  which  had  been  set  aside  for  the  United 
States  among  the  refiners. 

After  considerable  discussion,  the  refiners  in  this 
country  allowed  the  International  Sugar  Committee  to 
arrange  all  purchases  for  them.  The  Committee  then 
set  about  the  purchase  of  the  remainder  of  the  1917 
Cuban  crop.  The  Cuban  planters  held  out  for  $5.25  per 
hundred  f .  o.  b.  Cuba,  while  some  of  the  American  repre- 
sentatives, basing  their  estimation  on  the  cost  of  produc- 
tion figures  for  Cuba  were  unwilling  to  concede  more 
than  $4.50  per  hundred  pounds.  Meanwhile  the  Ameri- 
can people  were  experiencing  a  sugar  famine  such  as 
had  never  before  been  heard  of.  On  December  24,  the 
differences  were  finally  settled  by  an  agreement  whereby 
three-fourths  of,  or  upon  option,  the  entire  new  crop  was 
to  be  sold  to  the  International  Committee  at  $4.60  fob. 
Cuban  ports.76  After  adding  freights,  duties  and  other 
costs  this  price  was  equivalent  to  about  $6.00  New  York 
City. 

Thus  far,  it  will  be  seen  that  three  different  prices  for 
sugar  were  fixed:  (1)  beet  sugar  was  to  sell  at  $7.25  per 
hundred  pounds  at  New  York;  (2)  domestic  cane  at 
$7.70;  while  (3)  Cuban  cane  was  fixed  at  $6.00  New 
York  City  plus  the  refiners  margin  of  $1.30  per  hundred 
pounds.  It  is  obvious  that  these  discrepancies  in  price 
could  not  be  maintained,  despite  agreements  between  the 
refiners  and  the  Food  Administration.  The  beet  sugar 
industry  varied  in  its  cost  of  production  from  2.6  cents 
per  pound  to  4.5  per  pourfd.  To  limit  the  profits  of  these 
refiners  by  restricting  them  to  a  profit  margin  would 
result  in  a  different  price  of  sugar  for  every  factory  in 

76    Joshua  Bernhardt,  Government  Control  of  Sugar,  1919,  p.  16, 


Control  of  Sugar.  65 

the  country.  The  consumer  would  have  no  benefit  from 
this  arrangement,  because  if  a  retail  groceryman  bought 
part  of  his  sugar  at  one  price  and  part  at  another,  we 
can  be  assured  that  he  would  maintain  the  top  price.  The 
beet  sugar  dealers  might  have  agreed  upon  a  definite 
price  and  then  pooled  their  entire  output  and  the  costs 
of  distributing  it  among  themselves.  Such  a  method, 
however,  called  for  an  agreement  among  factories,  which 
could  hardly  be  expected.  Moreover,  agreements  of  this 
kind  might  possibly  come  within  the  Sherman  Act  for- 
biding  combinations  in  restraint  of  trade.  These 
obstacles  in  the  way  of  a  fixed  price  for  beet  sugar  were 
also  present  with  regard  to  cane  sugar. 

From  the  testimony  of  Mr.  Spreckels,  at  the  Hearings 
on  the  Sugar  Shortage  it  appears  that  the  sugar  shortage 
in  the  eastern  States  from  October  to  January,  1917-18 
could  have  been  relieved,  had  Western  refiners  been  will- 
ing to  part  with  their  surplus.  There  were  approxi- 
mately 110,000  tons  of  raw  sugar  held  during  this  period 
by  the  Western  Refining  Company  and  the  California 
and  Hawaiian  Refining  Company,  which  amount  was 
sufficient  to  provide  the  Atlantic  Coast  States  for  at 
least  a  month.  The  Food  Administration  had  fixed  the 
price  of  beet  sugar  at  $7.25  per  hundred  pounds  at  San 
Francisco,  Boston,  New  York,  Philadelphia  and  New 
Orleans.  As  this  price,  however,  made  no  provision  for 
transportation  charges,  Western  refiners  found  it  more 
profitable  to  keep  their  sugar  at  home.77  In  order  to 
move  these  sugars  East,  the  Food  Administration  was 
obliged  to  raise  the  price  of  beet  sugars  from  $7.25  to 
$8.15  per  hundred  pounds  to  equal  that  of  Louisiana  cane 
sugar.* 

Many  of  the  Eastern  cities  were  practically  bare  of 
sugar  during  these  months,  and  people  experienced  the 
barren  pleasure  of  knowing  that  the  price  of  sugar  was 
low,  without  being  able  to  purchase  any. 

77    Hearings  on  the  Sugar  Shortage,  p.  no. 

*  The  $8.15  price  for  beet  would  be  equivalent  to  $8.35  for 
cane  sugar,  as  the  market  price  for  cane  sugar  is  always  about  20 
cents  higher  per  hundred  pounds  than  that  of  beet  sugar. 


66  Control  of  Sugar. 

As  yet  no  guaranty  of  a  fixed  price  had  been  given  to 
the  beet  growers.  The  contracts  made  by  the  factories 
were  one-sided  and  unfair.  Their  costs  had  doubled, 
many  had  lost  money  the  previous  year.  Unless  a  higher 
price  was  guaranteed  either  by  the  factories  or  by  the 
Pood  Administration  the  beet  growers  could  no  longer 
afford  to  raise  beets.  Mass  meetings  were  held  (by  the 
beet  growers),  costs  of  beet  growing  and  refining  were 
investigated  for  various  states,  and  resolutions  were 
drawn  up  and  presented  to  the  Food  Administration. 

The  profits  made  by  the  refiners  in  Southern  Cali- 
fornia were  enormous.  In  one  instance  which  is  quite 
representative,  the  manager  and  secretary  of  the  Santa 
Ana  Sugar  Refining  Company  testified  before  the  grand 
jury  of  Los  Angeles  County  that  his  refinery  represented 
an  investment  of  $1,250,000  and  that  it  had  made  a  net 
profit  for  the  1915-16  crop  of  between  $800,000  and 
$900,000.78 

It  is  unnecessary  for  our  purposes  to  enter  into  a  dis- 
cussion of  these  charges.  In  general,  it  seems  fair  to  say 
that  the  beet  growers  were  getting  the  worst  of  the  bar- 
gain. The  basic  figure  per  ton  received  by  the  growers 
over  a  ten  year  period  was  $4.50.  For  the  1916  crop  they 
received  this  price  plus  a  bonus  of  $2.00  per  ton.  The 
Food  Administration  after  some  delay  finally  made 
agreements  with  the  factories  to  pay  $10.00  per  ton  for 
beets — an  indication  that  the  growers  had  not  been  justly 
treated. 

The  agreements  between  the  sugar  trade  and  the  Gov- 
ernment resulted  in  considerable  saving  for  consumers. 
\Vhile  it  is  impossible  to  know  exactly  to  what  price 
sugar  would  have  risen  without  interference,  perhaps  25 
cents  per  pound — it  is  reasonable  to  think  that  some  re- 
duction resulted.  The  sugar  trade  journals  were  unable 
to  see  why  the  price  should  be  kept  so  low  relative  to 
other  food  products.  The  acute  shortage  in  the  East 
would  naturally  have  tended  to  raise  prices  in  this  terri- 

78  Ibid.,  p.  462. — Mr.  Hoover  seemed  unaware  of  refiners'  profits 
when  he  fixed  the  price  for  beet  sugar. 


Control  of  Sugar.  67 

t 

tory,  yet  even  during  the  worst  periods  sugar  did  not 
advance  to  more  than  15  or  16  cents  per  pound,  the  aver- 
age price  to  the  consumer  of  the  middle  Western  states 
wias  about  nine  cents  per  pound. 

The  next  important  step  in  the  evolution  of  the  Sugar 
control  was  the  creation  of  the  Sugar  Equalization  Board 
in  July  1918.  In  order  to  understand  clearly  the  purpose 
for  which  this  Board  was  brought  into  existence,  it  will 
be  necessary  to  trace  briefly  the  price  problem  that  con- 
fronted the  Food  Administration  at  the  beginning  of 
1918.  We  have  already  seen  that  the  Food  Administra- 
tion tried  to  stimulate  the  production  of  sugar  beet  and 
cane  in  the  West  by  granting  a  raise  in  the  prices  to  the 
growers,  and  that  the  growers  estimating  the  price  as 
inadequate,  were  not  inclined  to  plant  for  the  next  year's 
crop.  Thereupon.  Mr.  Hoover  appointed  local  commit- 
tees in  the  principal  beet-growing  and  cane-growing 
states  to  investigate  costs  of  production  with  the  purpose 
of  finding  out  a  price  that  would  effectually  stimulate 
without  resulting  in  excessive  profits. 

The  Tariff  Commission  aided  the  Food  Administration 
in  this  work  by  seeking  to  determine  the  actual  costs  for 
the  beet  sugar  factories.  In  its  recently  published  bulle- 
tin,79 the  Tariff  Commission  reports  that  there  was  a 
substantial  increase  in  the  prices  of  all  the  principal 
items  entering  into  the  production  of  sugar,  that  a  rise  of  / 
200  per  cent  in  the  filter  cloth  would  add  about  $1.30 
to  the  cost  of  a  ton  of  sugar  in  1918-19  above  the  cost  in 
1917-18,  while  a  40  per  cent  increase  in  wages  of  factory 
labor  alone  would  add  over  $3  to  the  cost  of  a  ton  and  if 
the  rise  extended  to  agricultural  labor,  as  manifested  by 
the  increased  cost  of  beets,  the  increased  cost  of  a  ton  of 
sugar  would  be  over  $12.80 

From  these  investigations  the  Food  Administration 
learned  that  a  price  of  9  cents  a  pound  would  be  sufficient 
to  cover  approximately  85  per  cent  of  the  production, 

79  Refined  Sugar,  Costs,  Prices  and  Profits,  1920. 

80  Costs  of  Production  in  the  Sugar  Industry,  Tariff  Informa- 
tion Series  (39),  p.  31. 


68  Control  of  Sugar. 

and  yield  a  profit  of  a  cent  a  pound  to  the  higher  cost  pro- 
ducers, and  that  7.45  cents  a  pound,  the  price  fixed  for 
the  preceding  year,  would  have  covered  but  30  per  cent 
of  the  production  with  a  profit  of  one  cent  a  pound  to  the 
higher  cost  producer  of  this  group. 

The  minimum  price  consistent  with  the  aims  of  the 
Food  Administration  was  9  cents  a  pound.  Even  this 
price,  it  was  felt,  would  compel  a  number  of  high  cost 
producers  to  close  their  factories.  It  was  hoped,  how- 
ever, that  this  deficit  would  be  offset  by  the  increased 
production  of  the  lower  cost  producers. 

The  United  States  Tariff  Commission  also  investigated 
the  costs  of  the  cane  producers  of  Louisiana  and  found 
that  a  price  of  less  than  10  cents  for  refined  sugar  would 
seriously  curtail  production. 

A  situation  similiar  to  that  in  the  United  States  was 
also  found  in  Hawaii  where  average  costs  had  advanced 
from  3.06  cents  in  1913-14  to  4.08  cents  in  1916-17  and 
to  5.34  cents  in  1917-188] 

A  brief  submitted  to  the  Food  Administration  by  the 
Cuban  Mission,  appointed  by  Governor  General  Monocal, 
stated  that  the  price  of  $5.06  f.  o.  b.  at  the  north  ports  of 
Cuba  and  $5.55  at  the  south  ports  would  be  required  to 
stimulate  the  production  of  sugar  for  the  1918-19  crop. 
This  price,  plus  duty,  freight  and  other  charges  would 
amount  to  about  $8.54  per  100  pounds  wholesale  at  New 
York. 

Between  the  price  for  the  Cuban  sugar  at  New  York 
($8.54)  and  the  basic  price  desired  by  the  Louisiana 
planters  and  refiners  ($8.82)  there  was  a  difference  of 
28  cents  per  100  pounds.82  This  differential  might  be 
distributed  either  by  advancing  the  price  for  Cuban  cane 
to  that  of  the  American  price  or  by  allowing  American 
refiners  to  purchase  sugar  at  the  price  the  Cubans  were 
willing  to  accept.  Either  alternative  however,  would  re- 
Si  Ibid.,  p.  35. 

82  History  of  Prices  During  the  War.  The  War  Industries 
Board,  p.  83. 


Control  of  Sugar.  69 

suit  in  enormous  profits ;  in  the  former  case,  to  the  Cuban 
growers ;  in  the  latter,  to  the  American  refiners. 

How  to  solve  this  problem  of  price  complexity  and  to 
arrange  for  more  centralized  form  of  distribution  was 
the  task  facing  the  Food  Administration  in  the  spring  of 
1918.  By  June  of  the  same  year,  Mr.  Hoover  came  to 
recognize  the  desirability  of  a  committee  to  purchase 
sugars  "in  Cuba,  Peru,  Mexico,  Java  or  anywhere  else  at 
prices  proper  to  the  occasion  and  to  make  an  average 
price  to  our  refiners."83  About  this  time  the  shortage 
became  so  acute  that  voluntary  conservation  could  be  no 
longer  relied  upon.  "Therefore,  wrote  Mr.  Hoover  to 
the  President,  "We  must  put  into  effect  some  form  of 
sugar  rationing  and  a  drastic  control  of  distribution. 
Otherwise  we  shall  have  territorial  and  industrial  in- 
justices all  over  the  country.  I  propose  an  honor  system 
of  cards.  An  execution  of  this  kind  becomes  at  once  ex- 
pensive for  printing  alone  for  20,000,000  households  will 
cost  $100,000  a  month  to  say  nothing  of  supervision." 

I  would  propose  to  solve  this  by  having  the  corpora- 
tion undertake  the  distribution  of  sugar  as  a  part  of  its 
expenses.  It  seems  to  me  fundamentally  sound  that  the 
users  of  a  commodity  should  pay  for  the  cost  of  its  dis- 
tribution rather  than  the  Government."84 

President  Wilson  expressed  his  approval  in  a  letter 
(June  17,  1918)  to  Mr.  Hoover  and  authorized85  the 
formation  of  a  corporation  to  be  known  as  the  United 
States  Sugar  Equilization  Board,  Inc..  with  a  capital 
stock  of  $5,000,000  owned  by  the  United  States. 

The  object  of  the  board  as  outlined  in  a  notice  of  the 
Food  Administration  on  July  11,  1918  was  "to  absorb  the 
high  peaks  of  cost  in  sugar  production  and  to  make  a 
small  margin  on  the  low  cost  of  certain  foreign  sugars 
which  may  be  purchased." 

Shortly  after  its  incorporation  the  Equalization  Board 
bought  up  all  the  remainder  of  the  1917-18  sugar  crop 

83  Letter  to  President  Wilson,  June,  1918. 

84  Ibid. 

85  Presidential  Proclamation,  July  8,  1918,  Exhibit  16. 


70  Control  of  Sugar. 

in  refiners  and  sugar  mills,  still  in  the  country,  or  in 
transit,  at  the  old  price  of  7.35  cents  a  pound  and  imme- 
diately resold  the  same  to  its  holders  at  the  new  price  of 
8.8  cents  a  pound.  This  transaction  eliminated  the  con- 
fusion of  "having  the  new  domestic  crop  at  the  new 
price  (9  cents  a  pound)  and  the  old  foreign  crop  at  the 
old  price  (6.055  a  pound  for  raw  and  7.35  for  refined) 
in  the  market  at  the  same  time."86 

The  change  in  price  went  into  effect  on  September  6, 
1918.  The  government  had  made  provision  for  the  exist- 
ing supplies  in  the  hands  of  the  refiners  but  it  remains 
to  be  seen  what  was  done  regarding  the  supplies  held  by 
wholesalers,  jobbers,  and  retailers.  Although  pre- 
sumably their  stock  on  hand  was  small,  nevertheless  the 
Food  Administration  ordered  them  to  sell  their  old  stocks 
at  the  former  price.  Till  the  end  of  the  year  the  Equali- 
zation Board  became  the  distributing  agent  of  the  re- 
finers, selling  sugar  at  $7.35  per  hundred.  The  Board 
absorbed  the  differential  between  this  price  and  the  price 
paid  to  the  Cuban  planters.87 

Having  thus  solved  the  price  problem,  the  Board's 
next  step  was  to  arrange  for  an  equitable  distribution 
among  the  principal  governments  associated  in  the  war. 
The  Board  was  saved  some  trouble  in  this  phase  of  its 
work  by  granting  an  assignment  to  the  British  Royal 
Commission  whereby  its  rights  to  one  third  of  the  sugar 
purchased  from  the  Cuban  planters  were  assumed  by  the 
Royal  Commission;  from  this  amount  the  Royal  Com- 
mission was  to  provide  for  Great  Britain  and  the  other 
Allies. 

There  were  other  features  of  the  Food  Administra- 
tion's policy  which  attracted  more  attention  than  the  de- 
tails related  above  because  their  success  depended  in 
part  upon  the  publicity  given  them.  As  these  activities 
are  fresh  in  the  minds  of  many,  it  will  be  sufficient  to 
touch  upon  them  here  briefly.  These  activities  usually 

86  United  States  Food  Administration,  News  Release,  No.  1151 
Aug.  25,  1918. 

87  War  Industries  Board,  Government  Control  of  Prices,  Bull. 
No.  3,  p.  83. 


Control  of  Sugar.  71 

centered  on  conservation  measures.  In  October  1917.  all 
users  of  sugars;  bakers;  confectioners  and  manufac- 
turers, except  those  engaged  in  the  production  of  essen- 
tial food  products  were  limited  to  50  per  cent  of  their 
prewar  requirements.  In  January,  as  modified  to  meet 
the  incoming  supply  of  Cuban  sugar,  this  regulation  was 
changed  to  80  per  cent  of  the  prewar  requirements.  A 
subsequent  ruling  provided  "that  such  manufactures 
starting  operations  after  November  1,  1917  but  before 
April  1.  1918  would  be  limited  to  50  per  cent,  of  their 
sugar  requirements  and  those  starting  after  April  1, 
1918.  should  be  alloted  no  sugar  whatever.  Beginning 
March  15.  1918,  practically  all  manufacturers  using 
sugar  were  required  to  obtain  certificates  from  the  Food 
Administration  in  their  respective  states  showing  the 
amounts  they  were  entitled  to  purchase."88 

Rationing  is  apt  to  be  the  source  of  much  complaint 
unless  it  is  carried  out  with  just  regard  to  individual  re- 
quirements. But  individual  requirements  in  an  acute 
shortage  of  a  commodity,  must  be  measured  by  officials. 
The  following  classifications  of  sugar  were  used  by  the 
Food  Administration  during  July,  August  &  September 
of  1918. 

Class  A.  included  sugar  used  in  sirups  of  all  kinds, 
candies,  cereals,  cocoa,  flavoring  extracts  etc.  Manu- 
facturers of  this  class  were  limited  during  July,  August 
and  September  (1918)  to  50  per  cent  of  the  amount  of 
sugar  used  the  corresponding  months  of  preceding  year. 

Class  B.  included  sugar  used  in  canning  and  preserv- 
ing vegetables  and  fruits,  meats  and  milk.  Each  estab- 
lishment of  this  class  was  allowed  its  full  requirements, 
sugar  used  the  corresponding  months  of  preceding  year, 
amount  used  in  the  corresponding  months  of  the  preced- 
ing year. 

Class  C.  included  sugar  used  in  all  public  eating 
houses,  hotels,  restaurants,  dining  cars  etc.  The  allot- 

88  Blakey,  R.  G.,  Sugar  Prices  and  Distribution,  Journal  of 
Economics,  Aug.,  1918;  cf.  A.  N.  Merrit,  War  time  control  of  dis- 
tribution of  Foods,  pp.  115-125. 


72  Control  of  Sugar. 

ment  for  these  during  the  above  named  months  was  not 
to  exceed  3  pounds  of  sugar  for  every  90  meals  served. 
During  these  same  months  the  preceding  year,  or  the 
number  of  meals  served  during  June  of  1918  multiplied 
by  3. 

Class  D.  included  sugar  used  by  manufacturers  of  all 
bakery  products.  To  these  was  allowed  70  per  cent  of 
the  amount  used  during  the  corresponding  months  of  the 
preceding  year  or  three  times  70  per  cent  of  the  amount 
used  during  June  this  year. 

Class  E.  included  sugar  sold  by  retailers  and  others 
for  direct  consumption.  Those  included  in  this  class 
were  alloted  sugar  for  sales  to  householders  on  the  basis 
of  3  pounds  per  person,  per  month. 

The  public  was  relied  upon  to  decrease  their  consump- 
tion of  sugar  from  patriotic  motives.  "Use  less  sugar" 
was  a  familiar  slogan.  Had  sugar  been  abundant,  it  is 
perhaps  safe  to  say  that  little  conservation  would  have 
been  practiced.  As  it  was  conservation  was  a  necessity 
for  most  people,  who  either  could  not  afford  to  indulge 
their  tastes  for  sweets  to  the  full  extent  at  15  to  20  cents 
a  pound,  or  if  they  could  afford  the  price,  found  it  diffi- 
cult to  obtain  the  article.  That  the  comparatively  low 
price  might  not  be  the  occasion  of  additional  indulgence 
on  the  part  of  the  public,  purchases  were  closely  watched. 
The  Food  Administration  complained  in  September  1918 
that  the  war  had  brought  about  increased  prosperity, 
which  had  greatly  added  to  the  purchasing  power  of  the 
public,  "Demand  for  sugar  had  increased,  it  said,  in  re- 
sponse to  the  increased  purchasing  power."  At  first  5 
pounds  were  allowed  to  urban  customers  and  10  pounds 
to  rural  customers.  In  June  1918,  these  rations  were 
curtailed  to  2  and  3  pounds  respectively,  and  retailers 
wfere  forbidden  to  sell  to  any  customer  more  than  3 
pounds  a  month.  From  August  1  to  November  1  the 
elasticity  of  demand  was  further  exemplified  by  de- 
creasing the  ration  to  2  pounds,  per  person,  per  month. 
After  November  1,  it  was  increased  to  3  pounds.  With 
the  signing  of  the  armistice  on  November  11,  these  regu- 


Control  of  Sugar.  73 

lations  soon  were  modified  and  on  December  1  finally  dis- 
carded.89 The  lifting  of  Governmental  control  took  place 
gradually,  however,  in  order  not  to  cause  too  much  dis- 
turbance in  the  market.  Some  members  of  the  sugar 
Division  were  strongly  in  favor  of  continuing  regulation 
for  a  few  months  after  the  signing  of  the  armistice  and 
addressed  a  communication  to  that  effect  to  the  Presi- 
dent. The  President  gave  no  response  to  this  letter,  and 
after  the  middle  of  December  the  Sugar  Division  was 
dissolved. 

The  effects  of  any  Governmental  control  over  food- 
stuffs can  be  judged  mainly  from  two  factors:  first,  the 
effect  on  production ;  secondly,  the  effect  on  price.  It  has 
been  asserted  that  the  Food  Administration  was  in  some 
degree  responsible  for  the  sugar  shortage  of  1917  and 
1918.  As  far  as  production  was  concerned,  the  opposite 
seems  to  be  the  case.  The  Cuban  crop  of  1917-18  was  a 
record  crop  amounting  to  3,446,083  long  tons;  this  high 
level  was  eclipsed  by  the  1918-19  crops  which  reached 
almost  4,000,000  long  tons.  Both  of  these  crops  were 
produced  under  prices  fixed  by  the  Food  Administration. 
The  beet  sugar  crop  of  the  United  States  in  1917-18  was 
765,207  short  tons,  about  49,000  tons  above  the  prewar 
average.  The  crop  for  1918-19  amounted  to  765.063 
short  tons.  The  Louisiana  crop  was  243,000  short  tons 
in  1917-18,  and  263,450  short  tons  in  1918-19.  To  what 
extent,  the  Food  Administration  was  responsible  for 
these  increases  it  is  not  possible  to  say,  but  in  view  of 
the  above  figures  it  can  not  be  held  that  the  Food  Admin- 
istration policies  tended  to  discourage  productions.90 

In  time  of  war,  it  is  essential  to  keep  production  as 
close  to  normal  as  possible,  this  can  be  done  only  by 
guaranteeing  the  producer  a  reasonable  profit.  A  price 
must  be  set,  therefore,  that  will  provide  for  honest  costs 
of  production  plus  a  fair  margin  of  profit.  Early  in  its 
career,  the  Sugar  Division  became  aware  of  this  principle 

89    U.  S.  Food  Administration,  News  Release  322,  Nov.  28,  1918. 
oo    Bernhardt,    Joshua,    Government    Control    of    Sugar    in    the 
United  States  During  the  War,  p.  711. 


74  Control  of  Sugar, 

and  provided  a  price  which  in  its  estimation  was  calcu- 
lated to  fill  the  above  requirements.  We  have  seen  that 
some  fault  was  found  on  the  part  of  the  Louisiana  plant- 
ers who  claimed  that  the  price  determined  was  inade- 
quate. The  Food  Administration  thereupon  showed  its 
fairness  by  rectifying  the  price.  Some  discontent  was 
expressed  by  the  public  at  the  inconvenience  entailed  by 
the  ration  system,  but  this  was  only  to  be  expected.  The 
saving  in  sugar  effected  by  the  sugar  restrictions  re- 
sulted in  about  75,000  tons  from  July  to  November,  ac- 
cording to  the  Food  Administration.  This  saving  in- 
cluded the  amount  saved  by  the  restrictions  placed  on 
confectionery  and  soft  drink  products.91  If  one  can 
judge  the  results  of  the  sugar  control  by  the  prices  of 
sugar  otbaining  immediately  after  the  suspension  of  re- 
gulations, no  conclusion  otherwise  than  satisfactory  can 
be  drawn.  From  1914  to  1918,  the  average  prices 
showed  a  gradual  rise;  the  wholesale  price  was  kept  at 
a  level  by  the  Food  Administration  until  the  end  of  1919 ; 
then  came  the  speculative  market  of  1920  with  all  the 
talk  of  "shortage,"  and  "hoarding"  by  speculators  and 
even  by  housekeepers.  In  the  summer  of  1920  there  was 
practically  no  market  quotation;  at  some  sales  the  price 
went  well  over  20  cents  a  pound.  Then  the  bottom  fell 
out  of  the  market;  sugar  was  selling  below  10  cents  be- 
fore the  end  of  the  year,  and  by  the  end  of  January  1921 
was  quoted  at  seven  and  three  fourths  cents.92 

91  U.  S.  Food  Administration,  News  Release,  1342,  Dec.  7,  1918. 

92  The  Literary  Digest,  Jan.  29,  1921,  p.  n. 


CHAPTER  V. 
CONTROL  OF  MEAT  AND  DAIRY  PRODUCTS. 


The  world  wide  shortage  of  meat  during  the  war  was 
due  to  the  constant  decline  of  meat  production  in  Europe. 
The  cause  of  this  decline  was  found  chiefly  in  the  diffi- 
culty of  raising  fodder  upon  which  the  production  of 
cattle  greatly  depends.  Production  of  wheat  became  so 
vital  that  it  would  have  been  almost  suicidal  to  allow  the 
farmers  of  Europe  to  devote  their  energies  to  the  pro- 
duction of  corn,  oats,  and  other  fodder  needed  for  cattle. 
Early  in  the  conflict,  England,  France  and  Germany  had 
established  fodder  rations  for  cattle,  and  as  the  war  con- 
tinued and  larger  numbers  of  cattle  had  been  killed  off 
without  being  replaced,  the  rations  per  animal  were  de- 
creased. England  decreased  her  capital  stock  of  food 
animals,  and  put  some  2,400,000  acres  of  former  grass 
and  hay  lands  into  grain  growing.93 

In  1917,  this  decrease  in  the  number  of  meat  produc- 
ing animals  was  most  notable.  According  to  figures 
compiled  by  the  Food  Administration,  the  total  net  de- 
crease in  cattle  for  the  Western  Allies  and  other 
countries  including  enemies  during  the  first  three  years 
of  the  war,  was  28,080,000 ;  in  sheep,  54,500,000 ;  in  hogs 
32,425,000.  Of  these  total  amounts,  the  decrease  for  the 
Allies  alone  was  8,420,000  head  of  cattle,  17,500,000 
sheep,  7,100,000  hogs. 

Early  in  the  fall  of  1917,  Mr.  Hoover  commenting  upon 
the  meat  shortage  of  Europe  in  relation  to  our  produc- 
tion said  that  the  problem  was  fundamentally  one  of  ton- 
nage, for  imported  fodder  required  shipping  far  in  ex- 
cess of  the  tonnoge  that  would  be  required  to  import 
equal  amounts  of  animal  products.94  The  supply  of 

93  G.  Soule,  'The  Meat  Control."— The  New  Republic,  Feb.  2, 
1918,  p.  13. 

94  Ibid.,  p.  10. 

75 


76  Control  of  Meat  and  Dairy  Products. 

cattle  in  France,  in  1917,  had  decreased  16.6  per  cent  as 
compared  with  that  of  1913 ;  that  of  sheep,  33  per  cent ; 
and  that  of  hogs  38  per  cent.  The  supply  of  cattle  in 
England  suffered  a  total  decrease  of  43.3  per  cent  be- 
tween July  1914  and  July  1917.95 

The  United  States  endeavored  to  cover  this  constant 
shrinkage  of  meat  production  among  the  Allies  by  in- 
creasing its  exports  to  them.  For  the  year  ending  June 
30,  1917,  our  exports  of  fresh  and  pickled  meats  exceeded 
270,000,000  pounds,  or  an  increase  of  almost  3000  per 
cent  over  the  pre-war  average.  Exports  of  ham  and 
bacon  increased  640,000,000  pounds  as  compared  with 
the  pre-war  average  of  303,489,000  pounds. 

But  not  only  did  meat  production  decrease  in  these 
countries,  but  also  in  the  United  States.  In  1907  there 
were  51,000,000  beef  cattle  (excepting  milck  cows)  in 
this  country ;  this  was  the  high  point.  By  1915  the  num- 
ber had  decreased  to  37,000,000.  Hogs  on  the  other 
hand,  have  shown  an  almost  steady  increase  from 
42,000,000  in  1896  to  64,000,000  in  1915.  The  situation 
with  respect  to  mutton  is  highly  complicated  by  the  im- 
portance of  the  wool  market  and  the  tariff.  In  1910  we 
had  57,000,000  sheep,  by  1915  only  49,000,000. 

The  war  effected  some  increase  in  the  meat  production, 
but  nothing  in  comparison  to  the  great  demand.  The 
number  of  cattle  increased  from  37,000,000  in  1915  to 
40,850,000  in  1917.96  These  decreases  are  very  signifi- 
cant and  serious,  when  the  increase  in  population  for  the 
same  period,  and  also  the  heavy  demands  due  to  war  are 
taken  into  account. 

As  the  war  wore  on  and  the  break-down  of  the  Allied 
meat  production  became  more  serious,  the  Food  Admin- 
istration turned  it's  attention  to  the  problem  of  stimu- 
lating the  supply.  The  meat  problem,  then,  was 
separated  into  its  two  main  factors;  cattle  production 
and  hog  production,  each  of  which  required  special 
handling. 

Q5    War  Industries  Board,  Bulletin  No.  3,  p.  88. 
06     U.  S.  Food  Administration,  Bull.  No.  9,  p.  7;  cf.  also  War 
Industries  Board,  Bull.  No.  26,  pp.  1-6. 


Control  of  Meat  and  Dairy  Products.  77 

CATTLE. 

For  the  past  fifteen  years,  the  number  of  cattle  in  the 
United  States  has  decreased.  From  being  a  heavy  ex- 
porter of  meats  we  became,  especially  after  the  removal 
of  the  duty  in  1913,  an  importer  of  fresh  meats,  Europe 
was  importing  her  beef  principally  from  South  America, 
for  cattle  could  be  raised  there  more  cheaply  than  in  the 
United  States. 

During  the  war,  the  allied  nations  had  to  depend  upon 
the  United  States  for  a  large  part  of  their  beef.  Vessels 
could  not  be  procured  to  make  the  long  haul  to  Argentine 
for  beef,  thus,  European  demand  for  our  beef  increased 
tremendously.  , 

In  view  of  the  large  overseas  demand  for  our  meat 
products,  it  was  evident  that  some  effort  must  be  taken 
to  stimulate  production.  But  it  was  scarcely  possible  to 
do  this  while  the  farmer  was  confronted  with  mounting 
prices  for  feed-stuffs  on  the  one  hand,  and  inadequate 
prices  for  cattle  on  the  other.  The  production  of  cattle, 
unlike  that  of  hogs,  depends  upon  a  variety  of  grains  and 
feed-stuffs.  The  problem  became,  then,  one  of  stabiliz- 
ing the  price  of  these  products,  for  uncertain  prices  in 
these  materials  were  discouraging  the  cattle  raisers. 

Of  mounting  costs  in  feed-stuffs  no  better  example  can 
be  given  than  that  of  cotton  seed  cake.  From  its  normal 
figure  of  $45  a  ton,  preceding  the  war  the  price  had  risen 
to  $60  a  ton  by  August,  1917.  At  this  price  many  cattle 
raisers  found  it  more  profitable  to  allow  their  cattle  to 
starve  on  their  ranges.  The  cotton  crops  for  the  two 
years  preceding  had  been  relatively  small.  Naturally 
enough  this  tended  to  drive  prices  of  cotton  products  up- 
ward. To  prevent  undue  speculation  a  meeting  was  ar- 
ranged between  the  cattle  raisers  and  the  cottonseed  in- 
terests, and  after  bitter  debate,  the  Food  Administration 
was  able  to  fix  the  price  of  cottonseed  cake  at  $50  per  ton. 
As  most  of  the  crop  had  already  been  contracted  for  by 
cattle  raisers  in  the  North,  little  relief  was  experienced 
from  the  fixed  price  by  the  steer  raisers  in  Texas.  The 


78  Control  of  Meat  and  Dairy  Products. 

Food  Administration,  therefore,  found  it  necessary  to  re- 
sort to  an  embargo  of  cottonseed  from  Texas,  and  di- 
rected dairymen  in  other  parts  of  the  country  to  seek 
their  supplies  from  Arkansas,  Louisiana  and  other  points 
east  of  the  Mississippi  River.97 

On  November  1,  1917,  all  ginners,  crushers,  refiners 
and  dealers  in  cottonseed  were  placed  under  license.  On 
December  7,  dealers  in  cottonseed  in  car  lots  were  limited 
to  a  fixed  margin  of  $2  per  ton  and  crushers'  margins 
were  limited  to  $13  per  ton  over  the  cost  of  cottonseed 
for  products  obtained  from  crushing.98 

The  profits  of  the  wheat  feed-stuff  producers  were 
fixed  in  December  1917,  when  a  series  of  differentials 
were  announced  by  the  Food  Administration,  based  on 
the  Government  wheat  price.  A  maximum  return  of  6 
per  cent  on  total  gross  sales  was  also  announced  for  the 
manufacturer  of  mixed  feeds.  On  individual  sales,  how- 
ever, cost  of  materials,  manufacturing,  and  overhead 
might  be  taken.  Other  coarse  grains  such  as  rice  feed, 
and  beet  pulp  were  controlled  in  like  manner;  definite 
price  regulations  being  applied  to  their  sales.  These 
measures  had  some  effect  upon  the  prices  of  feed-stuffs, 
and  thereby  lessened  the  insecurity  confronting  the 
raisers  of  cattle. 

In  addition  to  these  regulations,  conservation  measures 
were  issued  by  the  Food  Administration  from  time  to 
time.  A  meatless  day  was  inaugurated  on  November  1, 
1918.  Every  public  eating  place,  as  well  as  all  families 
were  asked  to  pledge  themselves  to  eat  no  meat  on  one 
day  each  week.  The  appeal,  according  to  the  Food  Ad- 
ministration, resulted  in  a  conservation  of  over  140,000,- 
000  pounds  of  beef  in  four  months." 

97  D.  Lawrence :  "As  Mr.  Hoover  Sees  It."  The  Country  Gen- 
tleman, Dec.  29,  1917,  p.  27. 

08  Government  Control  Over  Prices,  War  Industries  Board 
Bull.  No.  3,  p.  in, 

99     News  Release  of  Food  Administration,  Feb.  22,  1918. 


Control  of  Meat  and  Dairy  Products.  79 

CONTROL   OF   THE   MEAT   PACKING   INDUSTRY. 

There  was  no  effort  on  the  part  of  the  Food  Adminis- 
tration to  fix  the  prices  of  meat  and  meat  products  either 
directly  or  indirectly.  In  August  1917,  Mr.  Hoover  an- 
nounced to  the  packers  that  any  regulations  made  would 
concern  themselves  with  the  stimulation  of  production, 
and  the  elimination  of  speculative  profits.100 

The  meat  packing  industry,  for  many  years  the  object 
of  suspicion  and  investigation  was  subject  to  another  in- 
vestigation at  the  request  of  President  Wilson  on  Feb- 
ruary 7,  1917.  This  investigation,  undertaken  by  the 
Federal  Trade  Commission  was  not  completed  till  July  3, 
1918.  It  was  asserted  by  the  Commission  then,  "that  the 
packers  profits  in  1917  were  more  than  four  times  as 
great  as  in  the  average  year  before  the  European  War, 
although  their  sales  in  dollars  and  cents  at  even  the  in- 
flated prices  of  last  year  had  barely  doubled."101  The 
Commission  estimated  that  the  five  packers,  Armour  and 
Co.,  Swift  and  Co.,  Cudahy  and  Co.,  Morris  and  Co.,  and 
Wilson  and  Co.  handle  about  "half  the  poultry,  eggs  and 
cheese  in  the  main  channels  of  interstate  commerce."102 
One  company  in  1917  handled  50,000,000  pounds  of  but- 
ter, half  of  which  it  manufactured ;  the  sales  of  another 
amounted  to  $23,861,000.  Four  big  companies  own  56 
creameries  and  control  the  output  of  many  others.  Of 
a  total  production  of  152,500,000  pounds  of  oleomar- 
garine in  the  United  States  in  1916,  four  of  these  packers 
produced  42.5  per  cent.103  In  1916,  the  Big  Five's  per- 
centage of  slaughter,  including  subsidiary  and  affiliated 
companies,  was  as  follows: 

Cattle     82.2 

Calves    76.6 

Hogs    61.2 

Sheep  &  Lambs  86.4 

100  Official  Statement  of  the  U.  S.  Food  Administration,  Sept. 
12,  1918,  p.  12. 

101  Official  Statement  of  the  U.  S.  Food  Administration,  Sept. 
12,  1918,  p.  12. 

102  Report  on  the  Meat  Packing  Industry,  Part  I,  p.  231. 
£01       Ibid.,  p.  223. 


80  Control  of  Meat  and  Dairy  Products. 

These  facts  were  by  no  means  a  revelation;  other  in- 
vestigations had  disclosed  similiar  charges  against  the 
packers.  It  is  not  surprising,  then,  in  view  of  what  was 
assumed  unfair  practice,  to  find  that  on  September  12  the 
government  proposed  a  plan  to  license  the  meat  packing 
industry.  The  outstanding  feature  of  these  regulations 
was  the  limitation  of  profits  for  the  larger  packers  and 
the  prescribing  a  maximum  return  on  gross  sales  for  the 
smaller.  On  December  8,  1917,  the  regulations  of  the 
Food  Administration  fixed  the  maximum  profit  at  9  per 
cent  on  investment  (including  borrowed  capital)  for 
packers  doing  an  annual  business  exceeding  $100,000 
and  2*/2  per  cent  on  gross  value  of  sales  for  smaller 
packers.104 

So  many  and  diverse  are  the  activities  of  the  modern 
meat  packing  plant  that  it  was  necessary  to  define  what 
activities  were  included  under  the  packers  license  central. 
The  entire  packing  industry  was  divided  into  three 
classes,  and  different  regulations  were  applied  to  each. 
Class  I  included  all  activities  directly  connected  with  the 
slaughtering  of  live  stock.  In  this  class  was  also  in- 
cluded the  immediate  by-products.  The  profits  from 
this  source  were  limited  to  9  per  cent  of  the  investment 
included  (borrowed  capital)  per  year.  Class  II  included 
branches  of  the  packing  industry  not  directly  concerned 
with  products  derived  from  slaughtered  live  stock.  The 
specialty  products  such  as  canned  fruits,  canned  vege- 
tables, fish,  eggs,  butter,  milk,  cheese  and  groceries  were 
placed  in  this  class  for  which  a  maximum  return  on  the 
actual  investment  could  not  exceed  15  per  cent.  Class  III 
included  the .  activities  of  the  packers,  such  as  the  fatten- 
ing and  feeding  of  live  stock,  slaughtering  and  packing  in 
foreign  countries,  and  the  operation  of  banks  and  loan 
institutions.  These  branches  of  the  industry  were  ex- 
empt from  any  profit  limitations.105 

The  business  investment  of  Classes  I  and  II,  included 
only  investment  owned  by  licensees  and  actually  and 

104  Regulations   of   Packers'    Profits,   United    States    Food   Ad- 
ministration, Nov.  1917,  p.  3. 

105  Government    Control   Over    Prices,   War   Industries    Board, 
Bull.  No.  3,  p.  97. 


Control  of  Meat  and  Dairy  Products.  81 

necessarily  used  in  said  business.  It  included  also  the 
following  terms:  actual  investment  in  land,  buildings, 
machinery  and  equipment,  the  value  of  stocks  of  animals, 
the  amount  of  cash  on  hand  and  other  items.  Unless 
otherwise  authorized  or  directed  by  the  chief  of  the  Meat 
Division  the  licensees  must  estimate  the  value  of  the 
above-designated  items  according  to  the  same  methods 
and  principles  as  were  used  by  him  during  the  year  pre- 
ceding November  1,  1917.loti 

These  regulations  were  quickly  protested  by  the  five 
large  packers,  who  contended  that  the  maximum  profit  of 
9  per  cent  allowed  from  Class  I  investments  might  affect 
their  borrowing  capacity.107  Mr.  Hoover  in  reply  stated 
that  there  would  be  no  lack  of  confidence  on  the  part  of 
the  banking  community  in  the  packers  earning  capacity, 
especially  since  the  export  demand  for  meats  was  greater 
than  the  country's  supply. 

Special  provisions  were  made  to  enable  the  Food  Ad- 
ministration to  supervise  closely  the  business  of  the  pack- 
ers in  order  that  profit  might  not  be  concealed  or  diverted 
from  the  meat  industry  to  other  lines.  Unreasonably 
large  salaries  or  other  compensations  were  prohibited. 
Licensees  were  required  to  close  their  books  at  least  once 
in  10  weeks,  and  report  any  information  relative  to  pro- 
fits, sales  and  investments  to  the  Meat  Division  upon  its 
request.  Furthermore,  any  business  or  industry  in 
which  a  licensee  held  half  or  more  than  half  of  the  capital 
stock  must  present  its  books  and  records  for  inspection 
by  the  Food  Administration  whenever  requested. 

These  regulations  for  the  meat  packing  industry  were 
not  as  successful  as  the  Food  Administration  expected. 
Many  of  the  measures  adopted  by  the  Meat  Division  of 
the  Food  Administration  were  "developing  discontent 
and  criticism  in  sections  of  the  producing  community."108 
At  the  request  of  Mr.  Hoover,  a  committee  was  then  ap- 

106  Cf.  U.  S.  Food  Administration,  Rules  and  Regulations,  Meat 
Division,  1917. 

107  Commercial  and  Financial  Chronicle,  Dec.  15,  1917,  p.  2325. 

108  Letter  of  Mr.  Hoover  to  President  Wilson,  Mar.  26,  1918. 


82      '        Control  of  Meat  and  Dairy  Products. 

pointed  to  investigate  the  meat  packing  industry  and  de- 
termine a  better  policy  of  control. 

The  committee  confirmed  the  value  of  all  the  existing 
regulations  and  in  addition  advised  the  licensing  of  the 
stockyards.  In  accordance  with  this  suggestion,  the  Pre- 
sident issued  a  proclamation  on  June  18,  1818,  which  re- 
quired all  operators  of  stockyards,  all  buyers,  traders, 
and  others  who  operated  in  connection  with  the  stock- 
yards to  secure  licenses  on  or  before  July  25,  1918. 

After  the  signing  of  the  armistice,  it  was  quite  natural 
that  a  reduction  of  foreign  demand  for  meats  should  take 
place.  We  continued  to  ship  beef  to  Europe  for  several 
months  but  as  vessels  became  available  for  the  trip 
to  South  America  and  Australia,  our  beef  exports  prac- 
tically ceased.  The  effect  of  this  situation  was  felt  in 
April,  1919,  when  cattle  and  beef  prices  began  a  consid- 
erable decline. 

PRODUCTION  OF  HOGS. 

The  question  of  hog  production  was  much  more  vital 
than  that  of  cattle  production ;  more  vital,  because  it  in- 
volved one  of  the  most  urgent  needs  of  this  country  and 
of  the  Allies.  The  world  was  consuming  its  fats  at  a 
greater  rate  than  it  was  producing  them.  The  quickest 
means  of  producing  fat  in  large  quantities  is  by  the  rais- 
ing of  hogs.  Thus,  the  demand  for  fats  drew  the  close 
attention  of  the  Food  Administration  to  the  production 
of  hogs. 

Mr.  Hoover  was  much  concerned  to  find  that  whereas 
before  1916,  86  per  cent  of  our  hogs  had  been  slaught- 
ered each  year,  96  per  cent  were  slaughtered  in  the  fiscal 
year  of  1916-17,  and  the  average  weight  had  fallen  from 
219  pounds  to  211  pounds.109 

During  the  summer  of  1917,  it  was  found  that  many  of 
the  farmers  in  the  United  States  were  turning  their  ef- 
forts to  the  production  of  more  profitable  products  than 
corn  and  hogs.  They  complained  that  market  conditions 
were  unstable  and  that  hog  raising  incurred  too  much 

iog    U.  S.  Food  Administration,  Bulletin  No.  10,  p.  12. 


Control  of  Meat  and  Dairy  Products  83 

risk  and  not  enough  profit.  In  order  to  learn  the  facts 
of  the  case  a  commission  was  appointed  by  the  Food  Ad- 
ministrator. After  investigating  the  various  phases  of 
the  pork  industry,  and  especially  the  cost  of  hog  raising 
to  the  farmer,  the  commission  reported  that  the  price  of 
corn  upon  which  hog  production  chiefly  depended  had 
risen  more  rapidly  than  the  price  of  hogs.  Under  this 
condition,  it  would  be  foolish  for  the  farmer  to  feed  corn 
to  his  hogs,  inasmuch  as  his  labor  to  raise  them  would  re- 
sult in  a  net  loss.  The  commission  recommended  that  a 
minimum  price  be  fixed  for  hogs  and  that  this  minimum 
should  be  based  on  the  prevailing  price  of  corn.  It  was 
pointed  out  that  the  average  ration  of  corn  to  hog  pro- 
duction was  about  12  bushels  to  100  pounds  and  that  in 
order  to  restore  hog  production  to  a  more  stable  basis,  a 
ratio  of  at  least  13  to  1  must  be  maintained.110 

On  October  29,  1917,  two  days  after  the  report  of  the 
Commission  had  been  handed  in,  the  Meat  Division  of  the 
Food  Administration  was  established  at  Chicago  under 
the  direction  of  Mr.  J.  P.  Cotton.  Acting  on  the  data  of 
the  Commission,  Mr.  Cotton  fixed  the  minimum  price  for 
hogs  at  $15.50  per  hundred  weight  until  further  notice.111 
The  Meat  Division,  according  to  its  own  assertion,  had  no 
legal  means  of  enforcing  this  price.  It's  influence  as  a 
purchaser  for  the  Army  and  Navy,  Red  Cross  and  other 
associations  must  be  relied  upon  to  effect  the  actuality  of 
any  fixed  price.  Mr.  Cotton  assured  the  farmer,  how- 
ever, that  he  could  "count  on  getting  for  each  100  pounds 
of  hog  ready  for  the  market,  13  times  the  average  cost 
per  bushel  of  the  corn  fed  into  the  hogs"  but  at  the  same 
time  wished  it  to  be  understood  that,  "it  is  not  a  guaran- 
tee backed  by  money.  It  is  not  a  promise  by  the  packers. 
It  is  a  statement  of  the  intention  of  the  Food  Administra- 
tion, which  means  to  do  justice  to  the  farmer."112 

The  packers  were  opposed  to  the  12  to  1  basis,  and  in  a 
letter  written  to  the  Food  Administration  contended  that 


no    War  Industries  Board,  Bull.  No.  3,  p.  89. 

in     Official  Statement  of  Food  Administration,  Oct.  i,  1918,  p.  4. 

112    Ibid  ut  supra. 


84  Control  of  Meat  and  Dairy  Products. 

this  basis  might  prove  an  unduly  high  price  on  hogs  at 
the  starting  of  the  packing  season,  and  would  result  in 
the  lower  prices  probably  being  arrived  at  in  the  spring 
of  the  year,  whereas  the  ordinary  course  of  the  market 
is  the  reverse.113  The  effect  of  the  packers  objection  to 
the  13  to  1  basis,  and  the  $15.50  price  per  hundredweight 
minimum  may  be  judged  from  the  prices  that  actually 
obtained  throughout  1918  . 

Actual  Average  Monthly  Prices  of  Hogs  at  Chicago. 

(per  100  pounds) 

1918  1918 

January          $15.97  July  $17.62 

February          16.55  August  18.75 

March  16.87  Sepember         18.37 

April  16.85  October  16.75 

May  16.77  November         16.62 

June  16.42  December         17.00 

Since  the  ratio  method  was  used  by  the  Food  Admin- 
istration in  determining  the  minimum  price  for  hogs,  it 
will  be  well  to  explain  what  this  method  was. 

The  Ratio  Method  of  Determining  Cost  of  Producing 
Hogs.114 

The  method  of  determining  the  cost  of  producing  hogs 
used  by  the  committee  of  seven  expert  swine  men,  dele- 
gated by  the  Food  Administration  to  investigate  the  hog 
industry  is  noteworthy  because  it  shows  a  marked  differ- 
ence of  procedure  in  arriving  at  cost. 

The  method  is  a  simple  ratio  between  corn  and  hogs. 
It  is  based  on  the  assumption  that  hogs  are  condensed 
corn.  Without  any  statistical  devises,  swine  growers 
came  to  the  conclusion  that  the  value  of  one  hundred- 
weight of  hog  was  equal  to  more  than  the  value  of  10 
bushels  of  corn.  In  other  words,  they  established  the 

113  Official  Statement  of  the  U.  S.  Food  Administration,  Nov.  i, 
1918,  p.  7.. 

114  This  method  of  cost  production   was  advocated  by  H.  A. 
Wallace  in  "Wallace's  Farmer"  during  the  summer  of  1917,  and 
adopted  practically  without  change  by  the  Commission  appointed 
by  the  Food  Administration  to  determine  the  cost  of  production 
of  hogs.    Cf.  "Agricultural  Proces."— H.  A.  Wallace,  pp.  30-35. 


Control  of  Meat  and  Dairy  Products.  85 

market  price  of  ten  bushels  of  corn  as  the  cost  of  pro- 
ducing each  100  pounds  of  hog.  If  they  received  11 
bushels  of  corn  per  100  pounds  of  hog,  the  extra  bushel 
might  be  considered  as  profit. 

A  doubt  might  be  raised  as  to  the  accuracy  of  this 
ratio  used  by  the  farmers.  Figures,  however,  prove  with 
reasonable  exactitude  the  truth  of  the  ratio. 

Taking  the  ten  year  period  extending  from  1907-1916 
inclusive  we  find  that,  during  that  time  No.  2  Chicago 
corn  averaged  66.3  cents  a  bushel,  whereas  hogs  aver- 
aged $7.35  per  hundredweight.  The  ratio  for  this  period 
was  thus  11.4  bushels  of  Chicago  No.  2  corn  to  100 
pounds  of  Chicago  hog  flesh. 

The  uniformity  of  this  ratio  can  be  judged  from  the 
following  table  which  gives  the  ten  year  average  for  the 
past  60  years,  and  the  yearly  average  from  1908-1918. 

Average  number  of  Bushels  of  Corn  equal  in  price  to 
100  pounds  of  live  hog  in  ten  year  periods  from  1858  to 
1917,  and  in  year  periods  from  1908  to  1917. 
Period  Ratio  Period  Ratio 

1858-1867    10.6  1910 15.2 

1868-1877    11.7  1911     11.2 

1878-1887    11.0  1912     10.9 

1888-1897    11.8  1913 13.2 

1898-1907    12.2  1914 11.7 

1908-1917    11.3  1915 9.6 

1908 8.4  1916     11.5 

1909     11.3  1917     9.7 

It  will  be  noticed  that  from  the  1908-17  portion  of  the 

table,  that  slight  fluctuations  occur  from  year  to  year 
but  that  in  the  main,  the  average  holds  good.  The  same 
fluctuations  are  found  also  in  the  separate  months  of  the 
year.  These  are  seasonal  periods  of  over-supply  and 
scarcity  of  both  corn  and  hogs.  In  November  for  instance 
the  1907-1916  price  of  corn  was  67.2  cents  and  the  price 
of  hogs  $7.23,  or  a  ratio  of  10.6  bushels  to  100  pounds  of 
hog  flesh,  while  in  March  of  the  same  ten-year  period  the 
average  price  of  corn  was  61.7  cents  and  the  price  of  hogs 
$7.66,  or  an  ratio  of  12.4  bushels  of  corn  for  one  hun- 


86  Control  of  Meat  and  Dairy  Products. 

dred  pounds  of  hog  flesh.  By  accurate  information  and 
calculation  it  has  been  found  that  there  is  a  normal  ratio 
for  each  month  in  the  year. 

A  difficulty  here  arises  that  seems  to  affect  the  general 
conclusion.  As  the  prices  of  corn  fluctuate  from  month 
to  month  and  from  day  to  day  and  as  it  requires  a  num- 
ber of  months  to  raise  hogs  for  the  market  we  must 
weight  the  numbers  as  accurately  as  possible  to  repre- 
sent actual  conditions.  "The  Committee  assumed  that 
the  corn  going  into  the  making  of  a  hog  was  distributed 
over  twelve  months;  that  during  the  first  month  over  2 
per  cent  of  this  corn  went  into  the  hog  or  its  dam;  the 
second  month,  2  per  cent ;  third  month,  2  per  cent ;  fourth 
month,  3  per  cent ;  fifth  month,  4  per  cent ;  sixth  month,  6 
per  cent ;  seventh  month,  5  per  cent ;  eighth  month  9  per 
cent ;  ninth  month,  15  per  cent ;  tenth  month,  20  per  cent ; 
eleventh  month,  17  per  cent,  and  twelfth  month,  15  per 
cent.  We  find  that  during  the  ten  year  period,  1907- 
1916,  the  average  corn  ratio  for  January  was  11  bushels ; 
February,  11.6  bushels;  March  12.4  bushels;  April,  12.7 
bushels;  May,  12.3  bushels;  June,  12.1  bushels;  July  12 
bushels;  August,  11.8  bushels;  September  11.8  bushels; 
October,  11.3  bushels;  November  10.6  bushels  and  Decem- 
ber, 10.4  bushels."115 

Suppose,  for  example,  we  wish  to  find  the  cost  of  pro- 
ducing hogs  for  the  Chicago  market  for  the  month  of 
April,  1918.  We  begin  with  the  corn  values  of  April 
1917  and  each  month  consecutively  till  April  1918.  The 
actual  prices  of  No.  2  corn  at  Chicago  for  these  twelve 
months  were  as  follows:  144.9  cents,  163.9  cents,  170.9 
cents,  200  cents,  197.2  cants,  208.6  cents,  199.2  cents,  201 
cents,  173.2  cents,  180.6  cents,  174.5  cents,  and  172.3 
cents.  Weighting  these  prices  on  the  basis  indicated,  we 
get  a  composite  value  of  corn  of  182.5  cents. 

The  historical  ratio  for  the  month  of  April  is  12.7 
bushels  of  such  composite  corn.  Multiply  182.5  cents  by 
12.7  and  we  secure  $23.18  as  the  cost  of  producing  hogs 

115    H.  A.  Wallace.— Agricultural  Prices,  p.  32. 


Control  of  Meat  and  Dairy  Products.  87 

for  the  Chicago  market  of  April  1917,  under  the  ten  year 
ratio  method. 

Upon  the  report  of  the  Commission  the  Food  Admin- 
istration announced  that  it  would  use  every  means  to 
pay  the  hog-raisers  the  equivalent  of  13  bushels  of  corn 
for  each  100  pounds  of  hog  flesh  during  the  year  1918. 
Since  this  ratio  was  an  advance  over  the  historical  ratio 
of  11  bushels  per  hundredweight  it  was  expected  to  have 
a  strong  influence  toward  enlivening  hog  production. 

Despite  its  guarantee,  however  the  Food  Administra- 
tion found  it  difficult  to  maintain  its  agreement.*  An  ef- 
fort was  made,  early  in  September  1918,  to  show  that  the 
13  bushels  ratio  agreement  was  based  on  prices  of  corn  at 
the  farm  and  not  at  Chicago.  This  was  asserted  in  spite 
of  the  fact  that  the  printed  announcement  of  the  Food 
Administration  in  1917  specifically  stated  Chicago  prices. 
The  difference  in  price  to  the  farmers  from  this  maneu- 
ver was  a  loss  of  about  $2.50  per  hundredweight.  The 
Food  Administration  explained  its  position  on  the 
ground  that  previously  agreed  prices  were  too  high  for 
export  trade.  The  price  then  fixed  by  the  Food  Admin- 
istration was  a  minimum  of  $15.50,  which  was  really  a 
ratio  of  10.8  bushels.  A  wide-spread  indignation  among 
the  hog  raisers  resulted  from  such  a  repudiation  of  its 
promises  on  the  part  of  the  Food  Administration :  "The 
committee  of  some  fifteen  men,"  writes  Mr.  Wallace, 
"supposedly  representing  the  American  hog  producers, 
wihich  met  with  the  United  States  Food  Administration 
in  this  matter,  were  not  well  educated  along  statistical  or 
economic  lines,  and  they  went  down  to  defeat  in  Septem- 

Considerable  light  is  thrown  upon  the  position  of  the  Food 
Administration  in  its  effort  to  maintain  the  minimum  price,  by 
comparing  corn  and  hog  prices  during  this  period  Owing  to  the 
guaranteed  price  for  wheat,  corn  acreage  decreased  over  12  mil- 
lion acres  between  1917  and  1918,  and  showed  a  further  decline 
of  over  4  million  acres  between  1918  and  1919.  The  effect  of  this 
was  an  abnormal  increase  in  corn  prices.  Corn  prices  rose  from 
a  pre-war  (July  i,  1913,  to  June  30,  1914)  average  of  67  cents  per 
bushel  to  $1.59  per  bushel  in  January  1918,  an  increase  of  133  per 
cent.  Hog  prices  rose  from  $8.30  per  hundredweight  in  the  pre 
war  year  to  $15-97  per  hundredweight  in  January,  1918,  an  in- 
crease of  91  per  cent. 


88  Control  of  Meat  and  Dairy  Products. 

ber,  1918,  scarcely  knowing  what  the  Food  Administra- 
tion had  done  to  them."116 

The  "13  to  1"  ratio  price  basis  $15.50  set  by  the  Meat 
Division  did  not  long  continue  to  operate.  In  January 
1913,  the  prices  had  fallen  to  $15.17.  In  February,  how- 
ever, prices  rose  to  an  average  of  $16.55  around 
which  they  fluctuated  till  June.  In  August  1918,  a 
pronounced  decrease  in  the  supply  took  place  sending 
prices  to  $18.75.  The  peak  was  reached  in  September 
when  the  price  advanced  to  $19.75.  The  Food  Adminis- 
tration again  assumed  control  and  by  withholding 
European  Orders,  kept  prices  from  mounting  higher. 
The  packers  agreed  to  maintain  as  far  as  possible  a 
$15.55  minimum  for  average  droves  as  well  as  to  main- 
tain the  price  on  the  ratio  of  13  to  1. 

On  December  10,  1918,  the  Food  Administration  put 
into  effect  the  zone  system  of  marketing  live  stock  at 
Chicago.  According  to  this  system  hogs  would  be  re- 
ceived from  points  within  300  miles  of  Chicago  on  Tues- 
days and  Thursdays.  Hogs  shipped  outside  of  the  300 
mile  limit  would  be  bought  on  Mondays  and  Wednesdays. 
On  Friday  and  Saturdays  hogs  were  to  be  received  from 
any  section.  The  object  of  this  regulation  was  to  pro- 
vide a  more  uniform  number  of  hogs  each  day  for  the 
market,  which  would  thereby  tend  to  stabilize  prices. 

"This  300  mile  zone  method  lasted  just  one  month," 
observes  Wallace's  Farmer  "and  during  that  month  the 
variation  in  receipts  and  prices  was  greater  than  in  the 
same  period  (from  December  10  to  January  10)  during 
any  previous  year."117 

In  January,  1918,  the  average  price  of  hogs  at  Chicago 
fell  to  $15.97.  The  Food  Administration,  in  order  to 
prevent  the  price  from  falling  below  the  minimum  se- 
cured as  many  orders  for  pork  products  as  possible  from 

116  Wallace,  H.  A.— Agricultural  Prices,  1920,  p.  35. 

117  Wallace's  Farmer,  January  18,  1918,  p.  76.    During  the  same 
period  in  1914-15  the  variation  in  average  price  on  different  days 
of  the  week  was  6  cents,  in  1915-16,  and  in  1916-17  7  cents.  During 
the  month  of  experimenting  with  the  zone  system,  the  variation 
was  32  cents. 


Control  of  Meat  and  Dairy  Products.  89 

the  Army  and  Navy  and  also  from  the  Allies.  In  Febru- 
ary, the  salutary  effect  of  these  solicited  purchases  was 
reflected  in  the  price  of  hogs,  which  rose  to  $16.55. 

As  early  as  October  1918,  reports  of  peace  circulated. 
Farmers  began  to  send  their  stock  to  the  market  in  vast 
numbers.  This  sudden  supply  brought  a  decline  of  from 
25  to  40  cents  per  bushel  in  the  price  of  corn,118  and  also 
a  drop  from  $19.37  per  hundredweight  to  $16.75  for 
hogs.  The  arrival  of  hogs  at  the  market  during  the  first 
three  weeks  of  October  was  27  per  cent  larger  than  in  the 
corresponding  month  of  the  previous  year.  The  fear  also 
that  large  quantities  of  cheap  corn  would  be  shipped 
from  Argentine  and  South  Africa  increased  the  proba- 
bility of  downward  prices. 

The  post-war  demands  of  the  Allies,  however,  stimu- 
lated the  price  during  the  latter  part  of  October  to  an  av- 
erage of  $16.62.  An  agreement  was  made  with  the  pack- 
ers supplying  government  orders  whereby  not  less  than 
a  daily  minimum  price  of  $17.50  per  100  pounds  was  to 
be  paid  for  the  average  packers  droves.  A  Committee 
was  appointed  to  supervise  the  market  and  regulate  the 
flow  of  hogs  to  the  market  in  accordance  with  the  ca- 
pacity of  the  various  packing  centers. 

It  was  expected  that  European  nations  would  renew 
their  demands  for  pork  products  long  after  the  close  of 
the  war.  During  the  first  two  months  of  1919,  foreign 
demand  was  brisk,  but  in  March  it  notably  declined. 
Prices,  however,  remained  high,  because  hog  receipts 
fell  off.  During  the  summer  and  fall  of  1919,  owing  to 
the  decline  of  European  demand  a  most  spectacular  drop 
occured.  , 

POULTRY  AND  EGGS. 

The  poultry  industry  was  not  subject  to  as  complete  a 
control  as  other  products,  yet  the  regulations  enforced 
were  considered  irksome  by  many  producers.  Early 
efforts  were  made  by  the  Food  Administration  to  license 

118    U.  S.  Food  Administration.    News  release,  No.  1269. 


90  Control  of  Meat  and  Dairy  Products. 

all  packers  and  shippers,  commission  merchants,  whole- 
salers, jobbers  and  suppliers  of  hotels  and  institutions. 
The  Department  of  Agriculture,  aided  the  Food  Admin- 
istration in  suggesting  ways  and  means  of  expanding  the 
poultry  industry.  City  and  suburban  residents,  who  had 
available  plots  of  ground  were  urged  to  raise  chickens,  in 
order  to  utilize  all  table  waste,  and  increase  the  annual 
egg  output. 

Poultry  raisers  were  interested  in  the  cost  of  corn,  and 
the  price  of  eggs.  Mr.  Priebe  who  acted  as  head  of  the 
Poultry  and  Egg  Division  of  the  Food  Administration 
early  in  November,  1917,  when  the  price  of  corn  was 
high,  promised  that  something  would  be  done  to  reduce 
the  price  of  corn. 

Apparently  his  words  were  taken  too  literally,  as  poul- 
try magazines  and  journals  were  constantly  reminding 
him  throughout  1918,  of  his  promise.119  The  average 
wholesale  price  of  corn  in  Chicago  in  August  1917  was 
$1.92  per  bushel,  in  September  $2.07,  in  October  $1.96,  in 
November  $2.05.  Throughout  the  year  1918,  the  price 
ranged  from  $1.77  to  $1.38  per  bushel,  as  compared  with 
49  cents  to  74  cents  per  bushel  in  1913.120  If  prices  were 
to  be  fixed  at  all,  the  poultry  producers  hoped  that  the 
first  price  fixed  would  be  that  of  corn. 

On  the  other  hand,  eggs,  firsts,  and  freshly  gathered 
do  not  show  a  range  in  price  relative  to  that  of  corn.  The 
average  wholesale  price  in  New  York  in  August  1917  was 
38  cents  per  dozen ;  in  September  40  cents ;  in  October  40 
cents;  in  November  48  cents;  and  in  December  56  cents 
per  dozen.  In  January  the  wholesale  price  reached  65 
cents,  and  retail  prices  advanced  to  $1.00  and  $1.10.  In 
March  the  market  broke,  and  the  price  fell  to  38  cents. 
In  April  and  May  the  average  price  was  34  cents  a 
dozen.121 

The  average  wholesale  price  of  dressed  fowls  for  the 


1 19  American  Poultry  Journal,  Feb.  1918,  p.   159. 

120  Bulletin  of  Monthly  Prices.     Price  Section  of  War  Indus- 
tries Board,  p.  42. 

121  Ibid.  p.  43.    The  increase  in  the  average  retail  price  of  eggs 
for  the  period  1913-20  may  be  consulted  from  the  table  on  p.  23. 


Control  of  Meat  and  Dairy  Products.  91 

month  of  August  1917  at  New  York  was  24  cents  per 
pound ;  for  September  27  cents,  for  October  28  cents ;  for 
November  23  cents,  and  for  December  26  cents.  Prices 
ranged  in  1918  from  29  cents  to  35  cents  per  pound. 

The  regulations  of  the  Food  Administration  were  de- 
signed to  prevent  waste  and  speculation  primarily,  and 
to  control  prices  only  by  limiting  margins  of  profit.  Those 
handling  poultry  were  to  keep  their  goods  moving  to  the 
consumer  in  as  direct  a  line  as  practicable,  and  without 
unreasonable  delay.  Re-sales  within  the  same  trade, 
especially  if  tending  to  result  in  a  higher  price  to  the  re- 
tailer or  consumer  were  prohibited.  The  original  packer 
or  shipper,  storing  in  a  cold-storage  ware-house  was  pro- 
hibited from  selling  frozen  poultry  to  wholesalers  at  an 
advance  of  more  than  6  per  cent  over  cost.  Commission 
merchants  and  wholesalers  were  restricted  to  margins 
not  in  excess  of  5  per  cent  over  cost.  The  maximum  mar- 
gin allowed  to  original  packers  or  shippers  of  storage 
eggs  was  6  per  cent  over  cost;  while  commission  mer- 
chants and  wholesalers  were  limited  to  4  per  cent  over 
cost  or  7  per  cent  if  the  eggs  were  candled. 

Poultry  producers  complained  of  the  low  market  prices 
for  eggs  in  the  spring  of  1918.  Some  asserted  that  Mr. 
Priebe,  head  of  the  Poultry  and  Egg  Division  partly 
brought  about  this  drop  in  prices  by  his  statement  to  the 
effect  that  the  country  was  facing  an  egg  famine.  "We 
have  got  to  cut  down  the  egg  consumption  or  else  suffer 
a  fast  approaching  famine.  The  people  in  the  cities 
should  do  like  the  country  folk,  not  buy  eggs  when  the 
price  is  out  of  reach."122  It  was  also  stated  that  80  per 
cent  of  the  cold  storage  supply  of  eggs  had  been  con- 
sumed between  September  1  and  January  1.*  It  was 
widely  intimated  too,  that  the  head  of  the  Poultry  and 
Egg  Division  who  was  also  president  of  a  large  packing 
concern  was  acting  in  his  own  interest  in  attempting  to 
reduce  the  demand  for  eggs  in  order  to  glut  the  market 
early  in  the  spring.  By  asking  consumers  not  to  buy 

122    American  Poultry  Journal,  Feb.  1918,  p.  160. 

Cold  storage  dealers,  however,  did  not  credit  this  statement, 
and  the  government  figures  showed  an  increased  holding  of  eggs 
of  more  than  20  per  cent  over  the  preceding  year. 


92  Control  of  Meat  and  Dairy  Products. 

eggs,  greater  supply  of  storage  eggs  would  be  on  hand, 
tending  to  reduce  the  price  to  packers  for  spring  ship- 
ments. 

In  a  statement  made  to  the  Reliable  Poultry  Review, 
Mr.  Priebe  explained  that  the  low  price  of  eggs  in  March 
and  April  of  1918  was  due  to  the  unusually  severe 
weather  of  January  and  February  which  held  back  the 
eggs  and  the  moderate  weather  of  March  and  April 
which  sent  them  in  large  quantities  to  the  market.123 

Much  criticism  was  expressed  against  the  so  called 
Rule  15  of  the  Poultry  &  Egg  Division.  This  rule  pro- 
hibited licensees  from  trading  in  live  or  freshly  killed 
hens  and  pullets.  Put  into  effect  in  the  latter  part  of 
February  1918,  at  a  time  when  poultry  raisers  are  ac- 
costomed  to  kill  off  fattened  and  unproductive  hens  for 
the  market,  it  resulted  in  losses.  Such  birds  would  have 
to  be  fed  at  a  loss  for  they  "would  not  begin  laying  again 
for  at  least  60  days  or  more."  Designed  to  increase  the 
production  of  eggs,  this  regulation  was  felt  an  injustice 
by  producers,  who  lost  the  best  live  poultry  trade  of  the 
season.  It  was  also  claimed  that  packers  would  reap 
abnormal  profit  from  the  selling  of  storage  poultry.  The 
effect  of  this  order  was  "the  greatest  rush  to  sell  off  both 
large  and  small  farm  flocks  that  we  have  ever  known — 
thousands  of  fowls  and  pullets  were  thrown  on  the  mar- 
ket (before  the  regulation  went  into  effect)  and  the  lo- 
cal (Chicago)  market  price  of  live  poultry  dropped  from 
32  to  26  cents  a  pound."124 

On  the  other  hand,  the  Food  Administration  estimated 
that  at  least  3,000,000  hens  were  saved  in  New  York, 
Chicago  and  Boston  alone.125  The  weather  conditions  of 
March  and  April  brought  about  an  early  laying  and 
hatching  period,  and  by  the  middle  of  April  Rule  15  was 
lifted. 


123  Reliable  Poultry  Review,  May  18,  p.  375. 

124  American  Poultry  Journal,  March  1918,  pp.  561  &  410. 

125  Government  Control  Over  Prices,  p.  101. 


Control  of  Meat  and  Dairy  Products.  93 

CONTROL  OF  MILK. 

The  Food  Administration  exercised  little  control  over 
the  prices  and  distribution  of  milk.  In  view  of  the  fact 
that  the  problem  is  largely  a  local  one,  and  complicated 
usually  by  State  laws,  the  administration  adopted  the 
policy  of  non-interference  wherever  possible.  Neither 
producers  nor  dealers  were  licensed  by  the  administra- 
tion. It  was  only  when  disagreements  between  the  milk 
producers  associations  and  the  dealers  reached  a  dead- 
lock that  the  Food  Administration  was  invited  to  act  as 
mediator. 

As  a  complete  study  of  the  milk  situation  during  the 
war  would  involve  an  analysis  of  the  activities  of  many 
district  commissions  chosen  to  investigate  local  condi- 
tions, and  would  reveal  practically  the  same  methods  of 
handling,  it  will  suffice  to  outline  the  work  of  two  of  these 
commissions — those  of  Chicago  and  of  New  York  City. 
These  cities  are  sufficiently  representative  as  far  as  the 
milk  situation  was  concerned,  to  furnish  an  adequate 
summary  of  the  entire  problem. 

During  the  past  fifteen  years,  city  distribution  of  milk 
has  been  largely  taken  over  by  companies.  The  rapid 
growth  of  these  companies  soon  gave  them  a  dominat- 
ing position  in  bargaining  with  milk  producers.  The 
number  of  distributors  in  Chicago  decreased  from  2,700 
in  1893  to  688  in  1917,  of  which  number,  two  companies 
were  distributing  approximately  40  per  cent  of  the  total. 
This  concentration  of  control  brought  about  many 
economies  in  distribution,  better  service  and  more  sani- 
tary precautions.  But  at  the  same  time,  the  farmer 
found  himself  at  the  mercy  of  these  powerful  bargaining 
concerns  who  practically  dictated  the  price  they  would 
pay  for  his  product.  Should  the  farmer  be  unwilling  to 
dispose  of  his  milk  at  a  price  which  he  thought  was  un- 
fair, he  was  forced  to  find  a  customer  for  his  product. 

To  combat  this  control  of  distributors,  there  arose  the 
Milk  Producers  Association  of  Chicago.  This  union 
first  made  its  strength  felt  in  April  1916,  when  it  de- 


94  Control  of  Meat  and  Dairy  Products. 

manded  an  increase  in  the  price  for  whole  milk.  Re- 
fusal on  the  part  of  the  distributors  to  accede  to  its  de- 
mands brought  threats  of  "dumping"  the  milk.  The  rise 
was  finally  paid  by  the  consumer,  milk  going  from  eight 
to  nine  cents  a  quart  at  retail.  In  April  1917,  a  similar 
struggle  took  place  which  resulted  in  ten  cents  a  quart 
milk  for  the  consumer. 

The  price  of  milk  depends  largely  upon  the  price  of 
feed-stuffs.  We  shall  note  changes  in  the  prices  of  both. 
Corn  sold  for  57  cents  per  bushel,  at  Chicago  on  May  1, 
1913.  In  1915,  on  th  esame  day,  the  average  price  was 
76  cents;  whereas  the  supply  had  increased  about  13 
million  bushels  the  demand  had  apparently  increased  to 
a  much  greater  extent..  In  1917,  the  average  corn  price 
was  $1.67  and  the  following  year  reached  about  $1.45 
per  bushel.126  Our  production  of  oats  amounted  to 
35,470,000  bushels  in  1917,  yet  the  price  advance  was 
almost  60  per  cent  higher  than  the  preceding  year,  when 
the  supply  was  only  20,265,000  bushels.  The  high  level 
of  1917  was  reduced  almost  60  per  cent  in  1918 ;  the  in- 
crease in  price  was  10  per  cent.  No.  2  Alfalfa  at  Kan- 
sas City  rose  from  an  average  prewar  level  of  $12.19  a 
ton  to  an  average  price  of  $20.04  in  1917  and  $21.29  in 
1918.  During  November  and  December  of  these  years 
alfalfa  sold  for  $27.25  and  $27.75 ;  $26.75  and  $23.25  re- 
spectively. In  July  1917,  it  was  estimated  that  feed- 
stuffs  were  selling  at  a  level  118  higher  than  during  the 
prewar  year.127  These  advances  correspond  to  the  ad- 
vances in  the  general  level  of  prices  during  this  period, 
but  eclipse  those  for  food  by  about  20  per  cent.  It  was 
only  to  be  expected,  then,  that  the  price  of  milk  should  be 
correspondingly  high. 

Both  wholesale  and  retail  milk  prices  appear  to  have 
been  surprisingly  stable  till  the  autumn  of  1916.  The 
following  table  shows  the  relative  price  fluctuations  in 
the  wholesale  and  retail  milk  market  for  New  York  and 
Chicago.128 

126  War  Industries  Board.     Prices  of  Feed  &  Forage,  1920,  p.  7. 

127  Ibid.  p.  13. 

128  Monthly  Labor  Review,  Dec.  1920,  p.  67. 


Control  of  Meat  and  Dairy  Products.  95 

Index  Numbers  of  the  Average  Wholesale  and  Retail 
price  of  Milk  at  New  York  and  Chicago. 

(Average  for  1913-100) 

Milk,  New  York  1913     1914     1915     1916     1917 

Fresh-Wholesale  100       86          86  86       143 

Fresh-Retail*  100     100         100         100       127 

Milk,  Chicago 

Fresh-Wholesale  100       95  97  95       124 

Fresh-Retail*  100     100         100         101       125 

From  the  above  table,  it  may  be  seen  that  the  average 
retail  price  of  milk  did  not  rise  in  New  York  during  the 
years  1915  or  1916,  and  that  the  rise  in  Chicago  was  one 
per  cent  during  the  year  1916.  In  the  following  year  an 
advance  of  27  per  cent  took  place  in  New  York,  while 
that  for  Chicago  was  24  per  cent.  As  compared  with  the 
118  per  cent  rise  in  feedstuff s,  these  advances  in  the  price 
of  milk  appear  insignificant.  In  1917,  both  wholesale 
and  retail  prices  of  milk  rose  gradually.  Each  increase 
asked  by  the  dairymen  was  reluctantly  granted  by  the 
distributors.  Finally  in  October,  the  latter  refused  to 
grant  the  increase  asked  by  the  dairymen.  The  Food 
Administration  was  then  requested  by  both  dairymen 
and  distributors  to  determine  what  price  should  be  paid 
to  the  farmers  for  milk. 

The  first  step  taken  by  the  Food  Administration  was 
the  appointment  of  a  committee  to  investigate  costs  of 
milk  production  and  distribution.  The  committee  sug- 
gested that  contracts  between  producers  and  distributors 
be  made  on  a  monthly  basis,  instead  of  a  period  of  six 
months,  as  had  been  customary.  By  means  of  monthly 
contracts,  the  price  of  milk  could  be  kept  at  a  ratio  with 
the  prices  of  feedstuffs.  This  suggestion,  though 
adopted,  does  not  appear  to  have  relieved  the  situation, 
for  further  appeals  were  soon  addressed  to  the  Food  Ad- 
ministration. 

When  the  producers  and  distributors  met  to  sign  the 
contracts  for  October  1917,  the  Milk  Producers'  Associa- 

*     Bottled  &  Delivered. 


96  Control  of  Meat  and  Dairy  Products. 

tion  of  Chicago  demanded  $3.43  for  each  100  pounds  of 
milk.  This  demand  was  one  cent  higher  than  the  price 
offered  by  the  distributors.  After  some  delay,  the  latter 
finally  acceded.  The  retail  price  advanced  from  10  to  13 
cents  a  quart:  consumption  showed  a  decrease  of  about 
20  per  cent. 

Definite  action  was  taken  in  November,  1917,  when 
regional  commissions  were  set  up  by  the  Food  Adminis- 
tration in  Boston,  New  York  and  San  Francisco.  These 
Commissions  were  composed  of  representative  produc- 
ers, distributors  and  consumers  in  the  several  cities.129 
It  was  their  duty  to  collect  data  and  make  investigations 
upon  the  cost  of  producing  and  distributing  milk.  The 
producers  and  distributors  of  each  district  voluntarily 
agreed  to  abide  by  the  decisions  of  the  committee,  but 
were  given  the  right  to  withdraw  from  any  agreement 
upon  30  days  notice. 

It  required  practically  two  months  to  hear  the  testi- 
monies of  farmers,  distributors  and  agricultural  ex- 
perts. Production  costs  varied  widely  and  the  commitee 
found  great  difficulty  in  determining  average  costs.  The 
Committee,  in  their  report  on  the  costs  of  production, 
advised  the  adoption  of  the  formula  method  with  various 
modifications  to  meet  conditions  in  different  districts.130 
The  formula  used  by  the  Chicago  Commission  was 
known  as  the  Modified  Pearson  Formula.  This  formula 
as  adopted  to  meet  the  requirements  of  the  Chicago  dis- 
trict, comprised  the  following  ingredients :  20  pounds  of 
home  grown  grains,  24  pounds  of  manufactured  feeds, 
110  pounds  of  hay,  and  3  hours  of  labor.  These  items 
were  taken  as  correctly  representing  the  average  amount 
of  feed  and  labor  required  to  produce  100  pounds  of  milk. 

"The  value  of  the  20  pound  of  grain  and  the  110 
pounds  of  hay  were  to  be  determined  by  using  farm 
values  of  hay  and  corn  in  the  states  of  Illinois  and  Wis- 
consin reported  by  the  Agricultural  Department  on  the 

129  Ibid.  p.  107. 

130  C.  L.  King,  "The  Price  of  Milk,"  p.  in. 


Control  of  Meat  and  Dairy  Products.  97 

first  day  of  the  preceding  month."131  The  value  of  24 
pounds  of  feed  was  to  be  computed  from  the  prices  of 
feed  in  the  daily  Feed  Report  published  at  Milwaukee. 
The  value  of  three  hours  of  labor  was  to  be  determined 
by  the  average  going  prices  for  farm  labor  paid  within 
the  Chicago  District. 

A  Committee  of  experts  appointed  to  report  to  Mr. 
Hoover  based  its  conclusions  upon  the  records  of  490 
dairy  farms,  producing  milk  for  city  markets  in  six 
northern  states.  These  States  were:  Minnesota,  Michi- 
gan, Massachusetts,  Connecticut,  New  York  and  New 
Jersey. 

As  computed  according  to  this  formula,  the  Commis- 
sion, on  February  2,  announced  that  the  following  prices 
should  be  paid  the  dairymen.  February  $3.07;  March, 
$2.83;  April,  $2.49;  May,  $2.04;  June,  $1.80;  July,  $2.30; 
August,  $2.75  per  hundred  pounds  of  whole  milk. 

The  price  fixed  was  always  for  3.8  per  cent  milk  ;*  four 
cents  was  added  for  better  fat,  for  each  point  above  that 
mount  and  the  same  amount  to  be  deducted  for  each 
point  below  3.5  per  cent. 

The  price  to  consumers  was  to  remain  at  twelve  cents 
per  quart,  with  the  provision  that  if  the  prices  paid  to 
the  dairymen  advanced,  and  the  distributors  found  them- 
selves unable  to  deliver  at  this  price,  proper  increase  to 
cover  extra  costs  was  to  be  added  by  the  distributors. 

These  prices,  agreed  to  by  six  of  the  nine  commission- 
ers, were  proposed  to  the  producers,  but  were  not  ac- 
ceptable. Two  representatives  of  the  Food  Administra- 
tion were  then  called  upon  to  review  the  findings  of  the 
commission.  These  representatives  confirmed  the  con- 
clusions drawn  up,  but  on  March  1,  were  prevailed  upon 
to  make  the  price  $3.10  per  hundred  pounds  instead  of 
$2.83  as  previously  determined  by  the  Commission. 

The  Modified  Pearson  Formula  was  in  use  in  determin- 
ing the  Chicago  milk  prices  for  about  six  months.  Im- 

131     Ibid.  p.  113. 

*    3.8  per  cent,  milk  contains  the  average  amount  of  butter  fat. 


98  Control  of  Meat  and  Dairy  Products. 

mediately  after  the  withdrawal  of  the  Food  Administra- 
tion, the  formula  method  was  abandoned  and  another 
method  adopted  to  secure  higher  prices. 

The  milk  situation  in  New  York  was  treated  with 
practically  the  same  methods  as  were  used  in  Chicago. 
Prices  Were  first  fixed  by  the  Milk  Commission  for  Janu- 
ary 1918  and  altered  from  month  to  month  according 
to  a  formula  submitted  by  Professor  Warren  and  ap- 
proved by  the  Producers  and  the  Committee. 

In  May,  1918  however,  virtually  all  the  milk  distribu- 
tors decided  to  withdraw  from  the  agreements  the  fol- 
lowing month.  Producers  and  distributors  finding  it 
difficult  to  come  to  any  agreement  by  themselves,  called 
in  the  Food  Administration  to  act  as  mediator  in  arriv- 
ing at  a  fair  price.  The  Food  Administration,  after  a 
study  of  the  situation  suggested  a  price  of  $2.70  per  100 
pounds  of  milk  for  the  month  of  August  and  $2.90  for 
September.  These  prices  were  accepted  and  for  the  re- 
mainder of  the  year,  the  Food  Administration  continued 
to  act  as  mediator.132 

The  price  fixed  fof  the  New  York  district  was  based 
upon  the  Warren  Formula:  namely,  that  to  produce  100 
pounds  of  milk  of  the  average  butter  fat  (3.8  per  cent) 
the  following  feed  and  labor  units  were  required:133 
Grain,  33.79  pounds;  Hay,  43.3  pounds;  Other  dry  for- 
age, 10.8  pounds ;  Ensilage,  92.2  pounds ;  Other  succulent 
food,  8.3  pounds;  Human  labor  3.02  hours. 

The  formula  method,  while  accurate  as  a  method  for 
ascertaining  production  costs,  is  not  infallible.  Though 
the  formula  may  remain  constant  for  many  years,  it  is 
always  conceivable  that  a  change  in  production  methods 
may  come  to  enable  farmers  to  produce  milk  at  a  lower 
price  than  the  formula  indicates.  The  formula  method 
when  used  in  price  fixing  is  open  to  several  objections. 
It  may  be  necessary  for  months  at  a  time  to  cater  to  con- 
sumers by  selling  a  product  below  the  formula,  or  the 

132  War   Industries    Board   Bulletin,   No.  3,   Government   Con- 
trol Over  Prices,  p.  108. 

133  C  L.  King,  The  Price  of  Milk,  p.  119. 


Control  of  Meat  and  Dairy  Products.  99 

cost  of  production  price.  In  trying  to  apportion  the  pro- 
fits of  the  year  equally  for  each  month,  price  fluctuations 
are  bound  to  be  frequent.  Consumers,  as  a  rule,  prefer 
constant  prices,  which  require  no  shift  of  demands  as 
soon  as  prices  rise,  though  the  rise  last  but  for  a  month, 
consumers  will  lessen  their  demand.  The  result  will  be 
lower  profits,  perhaps,  than  those  founded  upon  the  basis 
of  supply  and  demand.  Such  price  stabilization  does  not 
mean  that  farmers  will  receive  less  for  their  annual  out- 
put. During  the  summer  months,  the  spread  must  be 
made  wide  enough  to  create  reserves  against  the  lean 
months  of  the  autumn  and  winter. 


CHAPTER  VI. 
CONTROL  OF  CANNED  GOODS. 


The  Government  was  interested  in  canned  goods  dur- 
ing the  war,  and  watched  advancing  prices  for  these 
goods  with  much  concern.  Large  orders  needed  for  the 
Army  and  the  Navy  would  result  in  the  unnecessary  ex- 
penditure of  thousands  of  dollars,  if  prices  were  not 
curbed.  On  April  23,  1917,  the  Government  placed  an 
order134  for  35,000  cases  of  No.  3  tomatoes,  50,000  cases 
of  peas,  40,000  cases  of  corn,  290,000  cases  of  string 
beans,  10,000  cases  of  asparagus,  9,000  cases  of  pump- 
kin, 9,000  cases  of  spinach,  9,000  cases  of  saurkraut, 
5,000  cases  of  beets,  and  20,000  cases  of  Alaska  red  sal- 
mon. This  enormous  demand,  at  a  time  when  the  supply 
was  low,  resulted  in  a  sudden  jump  in  prices.  The  bids 
received  on  this  order  were  considered  too  high  by  the 
Government  Buying  Committee.  The  President,  how- 
ever, ordered  the  lots  to  be  taken  over  at  prices  which 
would  be  later  determined  as  reasonable.135 

Three  weeks  later,  during  which  time  Mr.  Hoover  had 
watched  the  prices  of  canned  goods,  the  industry  was 
alarmed  by  his  threat  to  place  packers  and  jobbers  under 
licensed  control.  Prices  were  too  high.  Goods  were  be- 
ing held  for  speculative  profits.  Unless  a  speedy  change 
took  place,  he  said,  the  industry  would  be  met  with  regu- 
lated profits. 

This  announcement  had  immediate  effect  in  bringing 
down  prices.  The  canners  appear  to  have  held  but  a 
small  percentage  of  their  output,  the  custom  in  the  trade 
being  to  sell  about  90  per  cent  of  the  pack  as  futures  in 
the  fall.  Speculators  and  merchandising  brokers  who 
held  the  largest  percentage  of  the  remaining  stock  now 

134  The  Canning  Trade,  June  4,  1917,  P-  10. 

135  Ibid.,  April  23,  1917,  p.  10. 

100 


Control  of  Canned  Goods.  101 

endeavored  to  unload  quietly  before  prices  dropped  too 
much.  Buyers,  on  the  other  hand,  anticipating  price  re- 
gulations, were  unwilling  to  buy  any  more  than  they  had 
immediate  need  for.  Later,  when  this  scare  had  passed 
over,  it  was  found  that  very  little  stock  was  in  the  mar- 
ket. Trade  journals  accused  Mr.  Hoover,  in  this  in- 
stance, of  undue  interference,  which  was  productive  of 
more  harm  than  good. 

Prior  to  our  entrance  into  the  war,  price  changes  in 
canned  goods  had  kept  pace  with  changes  in  the  general 
level  of  prices.  Even  at  this  time  the  prevailing  senti- 
ment among  the  canners  was  that  prices  of  canned  goods 
were  too  high.13'5  But  as  prices  continued  to  rise,  and 
threats  of  drastic  government  control  were  spread 
abroad,  this  sentiment  rapidly  changed.  Those  who  held 
goods  sought  to  reap  the  harvest  while  the  opportunity 
lasted.  The  Canner,  a  weekly  journal  of  Chicago,  exem- 
plifies the  typical  attitude  of  the  industry  at  this  time 
when  it  advises  packers  thus:  "Keep  your  nerve  and  sit 
tight  and  you  can  get  your  own  price  for  your  spot  toma- 
toes— but  weaken  and  the  jobbers  who  are  pursuing  a 
hold-off  policy  will  get  them  at  prices  below  what  they 
are  worth."137 

The  following  table  will  show  the  average  monthly 
range  of  prices  for  corn,  tomatoes,  peas  and  pumpkin 
during  the  year  1916. 

Monthly  Range  of  Prices  During  1917. 

Figures  taken  from  issues  of  "The  Canning  Trade;" 
the  issue  nearest  the  1st  of  each  month  being  used. 
Prices  quoted  represent  the  lowest  per  dozen  cans,  in 
wholesale  quantities  f.  o.  b.  Baltimore.  See  table  on  fol- 
lowing page. 

The  profits  of  the  packers  and  brokers  were  large  dur- 
ing the  year  1917,  yet  not  excessive  when  compared  with 
the  general  rise  in  the  value  of  money.  The  Federal 
Trade  Commission  in  its  Report  on  Canned  Goods  says : 
"In  1916,  42  packers,  representing  invested  capital 

136  Ibid.,  May  14,  1917,  p.  i. 

137  The  Canner,  March  9,  1917,  p.  20. 


102 


Control  of  Canned  Goods. 


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Control  of  Canned  Goods.  1Q3 

amounting  to  $12,752,241.03,  showed  net  incomes  aggre- 
gating $1,244,009.69.  Thus,  the  return  on  investment 
of  these  packers  averaged  10  per  cent.  In  1917,  37  pack- 
ers, representing  invested  capital  amounting  to  $12,224,- 
210.68,  showed  net  incomes  aggregating  $3,876,263.08. 
The  average  return  for  this  year  was  32  per  cent."138 
The  average  profits  for  1916  w;ere  small  because,  most 
of  the  pack  had  been  sold  at  futures  when  prices  were 
low.  The  profits  of  the  brokers  and  jobbers  doubtless 
were  higher,  for  they  had  the  advantage  of  a  rising  mar- 
ket. 

In  order  to  come  to  some  argeement  as  to  Government 
purchases,  the  canners  were  called  into  conference  on 
June  13,  1917.  The  method  adopted  was  to  apportion 
each  Government  order  among  all  canners,  based  on  the 
capacity  of  each  firm.  No  canner  was  to  be  called  upon 
for  more  than  10  per  cent  of  the  pack.  The  canners  were 
to  suggest  a  price,  and  if  this  was  suitable  to  the  Govern- 
ment, the  goods  were  to  be  purchased  at  that  price.  The 
following  bulletin  issued  by  the  Council  of  National  De- 
fense shows  the  successive  steps  pursued  in  the  pur- 
chases of  canned  goods  by  the  Government. 

A.  In  arriving  at  prices  "fair  and  just"  to  be  paid  by 
the  Government,  the  Quartermaster  Department  of  the 
Army  has  asked  the  Bureau  of  Accountancy  of  the  De- 
partment of  Commerce  to  assist. 

B.  Said  Bureau  asked  a  Committee  of  representative 
canners,  brought  to  Washington  for  the  purpose,  to  sub- 
mit a  schedule  of  prices  which  the  Committee  considered 
reasonable  and  likely  to  be  acceptable  to  the  whole  trade, 
with  the  understanding  that  the  same  would  be  looked 
into  by  the  bureau  and  approved  if  found  to  be  "fair  and 
just." 

C.  After  considering  the  advantages  and  disadvan- 
tages of  different  prices  for  different  localities,  it  seemed 
best  to  ask  every  canner  in  every  section  to  furnish  his 
quota  of  peas  at  the  same  price  f.  o.  b.  factory. 

138  The  Federal  Trade  Commission,  Report  on  Canned  Goods 
igi8. 


104  Control  of  Canned  Goods. 

D.  The  Army  and       Navy  desire  approximately  75 
per  cent  of  their  requirements  of  peas  in  standards*  and 
25  per  cent  fancy. 

E.  The  Committee  mentioned  in  B  submitted  the  fol- 
lowing prices  per  dozen: 

No.  3         No.  4         No.  5 

Fancy  Sweet  Wrinkled  $1 .50         $1 . 35         $1 . 25 

Fancy  Alaskas  1.50  1.30 

Standard  Sweet  Wrinkled  1.30  1.20  1.85 

Standard  Alaskas  1 . 30  1 . 15 

F.  The  prices  were  f.  o.  b.  cannery.     In  addition  to 
the  above  prices  8  cents  extra  was  allowed  for  cases. 

This  method  of  making  purchases  at  prices  determined 
by  the  canners  and  subject  only  to  Government  approval 
was,  however,  nothing  more  than  a  temporary  arrange- 
ment made  necessary  on  account  of  the  difficulties  in- 
herent in  more  stringent  control  over  the  canners  prices. 
The  Food  Administration  had  before  this  issued  the  gen- 
eral regulation  for  all  canners  that  prices  were  to  be  re- 
stricted to  a  "reasonable  advance  over  costs."139  Ac- 
cording to  this  rule,  prices  might  differ  widely,  for 
almost  every  canner  had  costs  different  from  every  other 
canner.  The  necessity  for  prices  based  on  average  costs 
became  apparent  to  the  Food  Administration  and  accord- 
ingly at  the  request  of  the  President  on  February  7,  1918, 
an  investigation  into  the  costs  of  production  and  distri- 
bution of  canned  vegetables  and  fruits  was  undertaken 
by  the  Federal  Trade  Commission.  This  study  includ- 
ing approximately  40  corn  canners,  20  tomato  canners, 
18  pea  canners,  12  string  bean  canners  and  10  canners 
of  fruit  or  about  25  per  cent  of  the  total  canned  vegetable 
industry  of  the  country  was  not  completed  until  May  18, 
1918.  The  report  emphasized  the  difficulty  of  arriving  at 


*    Official  Measurements  of  Standard  Cans. 

Diameter.  Height. 

No.     i  size 2  11-16  in 4  in. 

No.    2.  size 3    7-16  in 4  9-16  in. 

No.    3  size 4     1-4  in 4  7-8  in. 

No.  10  size 6    3-16  in 7  in. 

139    War   Industries   Board    Bulletin,   No.  3,   Government   Con- 
trol Over  Prices,  p.  115. 


Control  of  Canned  Goods.  105 

any  satisfactory  conclusions  regarding  costs  on  account 
of  the  differences  in  kinds  of  goods,  sizes,  and  grades. 
No  method  of  standard  grading  was  used,  and  as  prices 
depended  upon  grades,  the  same  pack  for  one  canner 
might  be  sold  for  more  money  by  another.  Raw  ma- 
terials varied  considerably  in  price  also,  due  to  the  lo- 
cation in  which  they  were  grown.  Corn  in  1917  cost  $20 
per  ton  in  Maine  and  only  about  half  that  amount  in  the 
Middle  Western  corn  belt,  and  tomatoes  in  the  same  year 
cost  twice  as  much  in  Maryland  as  in  the  West.140 

This  report  was  completed  in  time  for  the  Food  Ad- 
ministration to  make  use  of  its  data  for  the  1918  crop. 
The  problem  of  fixing  prices  and  profits  for  canned  goods 
was,  indeed,  a  complicated  one.  Should  a  fixed  price  be 
placed  upon  each  can  of  corn,  tomatoes,  or  peas  etc.,  or 
would  it  be  better  to  fix  the  price  upon  the  average  case 
of  these  goods  (usually  24  cans  to  a  case)  ?  Such  a 
method  would  necessitate  a  thorough  knowledge  of  all 
the  different  grades  of  vegetables,  fruit  and  fish  used  in 
canning,  and  must  also  take  into  account  the  many  diff- 
erent weights  of  can  contents.  On  the  other  hand,  a 
differential  might  be  declared  for  each  product,  grade 
and  size  of  can.  But  considering  the  wide  difference  in 
the  cost  of  production,  and  the  ease  with  which  figues 
might  be  manipulated,  such  differentials  would  result 
in  a  considerable  difference  of  price  for  the  same  pro- 
duct. However,  as  jobbers,  brokers  and  wholesalers 
would  still  purchase  from  packers,  there  would  be  small 
opportunity  for  the  latter  to  advance  prices  by  confus- 
ing grades.  If  an  individual  packer  asserted  that  his 
costs  were  higher  than  those  of  other  packers  in  the 
same  market,  and  that  therefore  he  might  freely  take  the 
maximum  differential  that  would  be  fixed  by  the  Food 
Administration,  he  would  find  himself  in  competition 
with  other  packers  of  lesser  costs.  Practically,  there- 
fore, the  packer  must  take  care  to  have  his  costs  no 
higher  than  the  average  costs  of  other  packers.  Only  a 

140  Federal  Trade  Commission,  Report  on  Canned  Goods  1918, 
p.  2. 


106  Control  of  Canned  Goods. 

shortage  of  canned  goods  would  enable  him  to  show  ap- 
parent disregard  for  costs.  But  if  the  Administration 
could  make  vegetable  and  fruit  growing  profitable 
enough  for  the  producer,  and  furthermore  would  fix  a 
reasonable  margin  for  canners,  shortages  of  canned 
goods,  as  far  as  human  effort,  was  concerned,  would  be 
improbable. 

With  these  considerations  the  Food  Administration 
decided  to  fix  margins  for  the  canners,  and  jobbers.  By 
way  of  gaining  some  information  upon  costs,  the  Admin- 
istration asked  each  canner  to  submit  cost  estimates  for 
each  of  the  varieties  he  packed.  These  estimates  were 
then  compared  with  those  furnished  by  the  Federal 
Trade  Commission  as  a  basis  for  establishing  fair  mar- 
gins of  profit. 

Early  in  1918,  the  Food  Administration  fixed  the  mar- 
gins for  canners  for  each  product,  at  the  same  time  is- 
suing regulations  as  to  the  size  of  can,  volume  of  con- 
tent and  grade.  These  margins  were  applicable  not  to 
single  cans,  but  to  dozen  lots. 

The  following  table  shows  the  margins  allowed  to  can- 
ners during  1918,  upon  canned  corn,  canned  peas  and 
canned  tomatoes,  for  standard  and  fancy  grades. 

Maximum  Margins  on  Canned  Goods  in  1918. 
Corn       (Per  dozen  cans  Cents 

No.   2.     Standard    19 

No.   2.     Extra  Standard     22 

No.   2.     Fancy    30 

Peas 

No.   2.     Standard  (average  for  all  sizes) 22 

No.   1.     Sub-Standard  (Average  for  all  sizes)    ...    .15 

No.   2.     Fancy  (average  for  all  sizes)    31 

Tomatoes 

No.   2.     Standard     18 

No.   2i/2.   Standard    22 

No.   3.  "Standard     27 

No.   3.     Fancy    31 

No.   3.     Standard     90 

No.   10.  Fancy    1.00 


Control  of  Canned  Goods.  107 

When  these  margins  were  announced  together  with 
those  of  jobbers,  many  jobbers  had  fancy  grades  on 
hand,  bought  as  futures  at  lower  prices  than  then  pre- 
vailed for  standard  stock.  A  selling  price  for  these 
goods  based  upon  cost,  would  have  placed  them  at  a 
lower  price  than  the  standard  goods.  This  difficulty  was 
adjusted  by  allowing  the  jobbers  to  average  their 
grades,  and  thus  receive  higher  prices  for  their  fancy 
goods  than  the  regulation,  literally  interpreted,  al- 
lowed.141 

All  canners  whose  output  exceeded  5,000  cases  per 
year  were  licensed  by  the  proclamation  of  October  8, 
1917.  On  January  10,  1918,  this  amount  was  lowered  to 
500  cases  per  year,  thus  including  virtually  the  whole 
industry. 

Early  in  November  1917,  before  the  maximum  mar- 
gins on  canned  goods  had  been  declared,  an  effort  was 
made  by  the  Food  Administration  to  check  speculation 
in  the  canning  trade.  The  method  first  employed  was 
that  applied  to  many  other  industries,  namely  the  pro- 
hibition of  long-time  contracts.  It  was  found,  however, 
that  this  ruling  worked  to  the  detriment  of  the  small 
packer.  Before  beginning  his  operation,  the  packer  in 
order  to  secure  a  supply  of  fresh  products  for  his  plant, 
contracts  with  neighboring  growers  for  a  certain  num- 
ber of  acres  of  produce.  Then,  he  buys  his  stock  of  cans, 
packing  cases,  machinery  labels  etc.  As  the  industry  is 
largely  composed  of  men  of  small  means,  who  are  unable 
to  finance  these  operations,  loans  from  banks  are  neces- 
sary. Before  the  bank  will  loan  any  money  it  usually 
requires  the  packer  to  show  some  evidence  of  a  market 
for  his  goods.  Contracts  with  brokers  and  jobbers  for 
future  sales  must,  therefore,  be  made,  before  the  packer 
begins  his  operations.  The  ruling  prohibiting  contracts 
from  being  made  before  February  1  of  the  year  in  which 
the  pack  was  to  be  sold  rendered  it  difficult  at  this  time 
for  the  packer  to  get  the  necessary  loans  from  the  banks. 


141     Federal    Trade    Commission    Report    Canned    Goods,    1918, 
P-  64. 


108  Control  of  Canned  Goods. 

The  usual  ruling  of  the  Food  Administration  prohibiting 
future  contracts  more  than  60  days  in  advance  were, 
therefore,  not  applied  to  the  packers. 

But  a  glance  at  any  of  the  canning  journals  at  a  later 
period  will  make  it  apparent  that  this '  exemption  was 
altogether  unnecessary.  Longtime  contracts,  by  force  of 
circumstances  became  a  thing  of  the  past.  Buyers  com- 
plained that  the  canners  refused  to  sell  futures  except  at 
prices  ruling  at  the  time  of  delivery.  "Canners  of  all 
kinds  have  seen  the  light  as  regards  the  selling  of  further 
futures  and  it  is  indeed  a  'rara  avis'  who  can  be  found 
willing  to  sell  now."142  One  big  shipper  expressed  his 
views  of  futures  thus:  ."I  may  be  an  awful  fool  not  to 
contract  for  my  entire  pack  at  the  prices  I  can  obtain 
today,  but  if  I  were  to  do  so,  and  prices  should  keep  going 
up,  I  am  likely  to  be  a  bigger  fool  for  having  made  con- 
tracts at  prices  that  would  seem  very  low  compared  with 
present  values."143 

Restrictions  upon  the  canning  industry  were  removed 
early  in  1919.  During  the  Food  Administration's  con- 
trol prices  were  kept  comparatively  stable.  This  control 
of  canners'  margins  resulted,  according  to  the  claims  of 
the  Food  Administration,  in  a  saving  to  American  con- 
sumers on  the  1918  pack  of  peas,  tomatoes  and  corn 
alone  of  over  $7,000,000. 


142  The  Canning  Trade,  Tune  4,  1917,  p.  10. 

143  Ibid.,  p.  22. 


CHAPTER  VII. 


CONTROL  OF  THE  UNLICENSED  RETAILER. 


The  Food  Administration  labored  under  a  distinct 
handicap  when  it  had  to  face  the  clause  in  the  Food  Con- 
trol Act  that  specifically  exempted  retailers  from  license 
control  when  their  gross  sales  fell  below  $100,000  an- 
nually. This  exemption  embraced  more  than  95  per  cent 
of  the  retailers  in  the  United  States,  thus  allowing  the 
largest  channel  of  distribution  to  go  uncontrolled.  Maxi- 
mum margins  for  wholesalers,  jobbers  and  commission 
merchants  would  be  of  little  benefit  to  the  consumer  if 
retailers  were  free  to  charge  what  prices  they  wished. 
The  exemption  itself  might  even  be  taken  as  an  enr 
couragement  of  high  prices.  In  the  general  scramble  for 
profits,  and  with  prices  advancing  from  day  to  day  there 
was  a  strong  temptation  for  the  retailer  to  take  all  the 
profit  he  could  get.  The  example  of  the  unscrupulous 
dealer  would  be  apt  to  exercise  a  harmful  influence  upon 
the  whole  system  of  regulations,  were  he  not  subject  to 
some  punishments. 

Since  the  law  had  specifically  exempted  retailers  whose 
gross  sales  were  less  than  $100,000  a  year,  and  since  it 
was  doubtful  whether  this  class  could  be  included  under 
section  4  of  the  Food  Control  Act  which  forbade  unjust 
and  unreasonable  charges,  combinations  or  conspiracies 
to  restrict  supplies  in  order  to  enhance  prices,  the  Food 
Administration  was  forced  to  devise  some  indirect  means 
of  enforcing  its  regulations.  The  method  adapted  was  to 
control  the  retailer  through  the  licensed  wholesaler,  and 
to  exert  pressure  upon  retail  prices  by  consumer's  re- 
ports, and  the  publication  of  "fair  price"  lists. 

The  retailer  must  necessarily  purchase  the  bulk  of  his 
supplies  through  the  wholesaler.  As  licenses  were 
granted  to  and  withdrawn  from  the  latter  upon  the  ful- 

109 


110  Control  of  the  Unlicensed  Retailer. 

fillment  or  infraction  of  specific  regulations,  it  was  felt 
that  regulations  might  also  be  enforced  whereby  the 
wholesaler  could  control  the  retailer.  The  result  of  this 
belief  led  to  the  making  of  Rule  17,  of  the  General 
License  Regulations.  This  rule  reads :  The  Licensee  shall 
not  knowingly  sell  any  food  commodities  to  any  person 
engaged  in  the  business  of  selling  such  commodity,  who 
shall  after  this  regulation  goes  into  effect,  violate  the 
provision  of  the  Act  of  Congress  approved  August  10, 
1917,  by  making  any  unreasonable  rate  or  charge  in  sell- 
ing or  otherwise  handling  or  dealing  in  such  commodity, 
or  by  holding,  contracting  for,  or  arranging  for  a  quan- 
tity thereof  in  excess  of  the  reasonable  requirements  of 
his  business  for  use  or  sale  by  him  for  a  reasonable 
time.144 

Under  section  4  of  the  Act  retailers,  were  prohibited 
from  holding  goods  in  excess  of  their  reasonable  require- 
ments and  from  charging  unreasonable  rates.  But  until 
it  was  determined  what  reasonable  rates  and  reasonable 
requirements  were,  the  retailer  was  left  to  his  own  inter- 
pretation of  these  clauses.  It  was  evident  that  before 
any  control  could  be  exercised  over  the  retailer,  some 
authoritative  declarations  must  be  made  as  had  been 
done  for  the  wholesaler.  The  retailer  must  know  how 
much  profit  he  could  take  and  what  charges  he  could 
make  without  being  considered  a  profiteer.  The  spirit  of 
the  law  was  not  a  sufficient  guide.  Likewise  he  must 
know  what  constituted  hoarding.  The  Food  Administra- 
tion found  it  necessary  to  fix  maximum  margins  for  all 
classes  of  goods  handled  by  the  retailer,  and  also  to  de- 
clare the  quantity  of  goods  he  could  hold. 

Sugar  and  flour  was  limited  to  not  more  than  a  thirty 
days  supply,  other  food  stuffs  to  not  more  than  a*  60  days 
supply.  Retailers  were  not  to  sell  to  persons  living  with- 
in a  city  more  than  an  eighth  of  a  barrel  of  flour  at  a 
time,  nor  more  than  a  quarter  of  a  barrel  to  persons  re- 
siding in  farming  communities ;  and  not  more  than  2  to 

144  Cf.  Sec.  4.  The  Food  &  Fuel  Control  Act  (Public.  No.  41, 
65th  Cong.) 


Control  of  the  Unlicensed  Retailer.  Ill 

5  pounds  of  sugar  should  be  sold  to  persons  in  a  city,  or 
more  than  6  to  10  pounds  to  those  in  a  farming  com- 
munity.145 

These  regulations,  the  Food  Administration  thought, 
should  be  supported  by  a  generous  spirit  of  co-operation. 
Retailers  should  not  be  made  to  feel  these  few  restric- 
tions irksome,  and  must  be  prepared  for  others  that 
might  be  necessary  in  the  future.  Accordingly,  on  Oc- 
tober 17,  1917,  a  representative  body  of  retail  food  dis- 
tributors were  invited  to  meet  at  Washington.  In  a 
series  of  resolutions  they  announced  their  purposes  of 
co-operation  in  every  way  possible.146  Copies  of  these 
resolutions  were  printed  and  sent  to  all  jobbers  who  dis- 
tributed them  to  retailers.  Over  3,000,000  copies  were 
requested  for  distribution,  so  that  virtually  every  re- 
tailer in  the  country  was  acquainted  with  these  resolu- 
tions and  knew  what  was  expected  of  him. 

An  effective  means  of  checking  the  tendency  to  charge 
excessive  prices  on  the  part  of  the  retailer  was  found  in 
the  confidential  weekly  reports  of  retail  prices  by  con- 
sumers. Early  in  October  1918,  and  continuing  each 
week  throughout  the  war,  price  blanks  were  sent  out  by 
the  comptroller  of  the  currency,  to  the  banks  of  the  coun- 
try, with  a  request  for  the  retail  prices  on  several  or  all 
of  the  28  commodities  enumerated.  Wheat  flour;  wheat 
bread,  cornmeal,  rice,  round  steak,  bacon,  ham,  pork 
chops,  lard,  milk,  butter,  oleomargarine,  cheese,  eggs, 
sugar,  potatoes,  beans,* navy,  onions,  prunes,  tomatoes, 
peas,  corn,  salmon,  fish,  hens,  tea,  coffee.  The  blanks 
were  distributed  to  selected  women  in  the  town  usually, 
such  as  the  wives  of  ministers,  bankers  and  professional 
men.  The  prices  paid  at  grocery  and  provision  stores 
were  then  listed,  without  the  knowledge  of  the  retailer. 
"The  first  weekly  reports  in  the  week  of  October  6,  1917, 
were  received  from  839  reporters  representing  789  towns 

and  cities.    On  September  28,  1918,  the  work  has  so  in- 

• 

145  War    Industries    Bull.,    No.    3,    Government    Control    Over 
Prices,  pp.  135-6. 

146  Cf.    A.    N.    Merrit,    War    Time    Control    of    Distribution    of 
Foods,  pp.  44-52. 


112  Control  of  the  Unlicensed  Retailer. 

creased  that  reports  were  received  from  1,871  reporters 
representing  1,035  towns  and  cities."147 

By  means  of  these  weekly  price  reports  the  Food  Ad- 
ministration found  a  fairly  accurate  indicator  of  the  re- 
tailers cooperation.  Price  curves  for  each  of  the  prin- 
cipal cities  were  made,  and  the  fluctuations  in  these 
curves  were  noted  from  week  to  week.  Where  extra- 
ordinary rises  occured,  an  investigation  was  made  to  find 
the  cause.  In  this  way  many  attempts  at  profiteering 
were  checked. 

In  many  of  the  large  cities  throughout  the  country, 
"Fair  Price  Boards"  were  in  operation.  The  object  of 
these  boards  was  not  to  find  out  the  prices  "actually 
paid"  by  the  consumer,  but  to  announce  the  prices  that 
should  be  paid.  Fair  Price  Committees  were  usually 
composed  of  several  boards,  each  of  which  dealt  with  a 
specific  group  of  commodities.  In  many  cases  these 
boards  were  composed  of  representatives  of  the  trade,  of 
consumers  and  of  the  Food  Administration.  The  usual 
procedure  was  to  find  out  the  cost  of  each  commodity  to 
the  retailer  then  add  to  this,  a  margin  sufficient  to  cover 
expenses  and  a  fair  profit.  Among  the  various  trades 
there  is  a  recognized  percentage  over  the  cost  price  which 
provides  for  average  costs  of  doing  business  and  leaves  a 
fair  margin  of  profit.  This  seems  to  be  true  of  many 
classes  of  retail  business.  Thus,  the  grocer  does  business 
on  a  10  per  cent  over  cost  basis ;,  the  butcher,  on  a  33  1/3 
per  cent  over  cost  basis.  After  having  found  out  the  cost 
price  and  average  over-head  charge  and  profit,  it  was 
easy  to  arrive  at  a  "fair  price."  "Fair  Prices"  were  not 
determined  so  rigidly  as  not  to  allow  for  differences  in 
costs  and  service.  On  the  contrary,  they  were  merely 
prima  facie  results  of  what  under  ordinary  circum- 
stances would  be  considered  reasonable.  Lists  of  those 
"fair  prices"  were  given  to  retailers  who  were  asked  to 
display  them  in  their  stores ;  each  week  the  list  of  prices 
was  published  in  the  local  newspapers.  Although  these 

147  War  Industries  Bulletin,  Government  Control  Over  Prices, 
P-  137- 


Control  of  the  Unlicensed  Retailer.  113 

lists  of  prices  were  not  taken  as  final,  yet  as  applied  to 
any  given  case  the  individual  retailer  was  compelled  to 
show  by  the  burden  of  proof  that  any  price  which  he 
charged  was  reasonable.  As  few  dealers  wished  to  do 
this,  the  "fair  prices"  were  usually  adhered  to, 

It  must  not  be  supposed,  however,  that  these  commit- 
tees loosely  organized  as  they  were  and  many  of  whose 
members  knew  little  about  conducting  business  were  en- 
tirely successful.  Too  much  dependence  was  placed  upon 
the  information  of  the  retailer  in  these  Committees. 
Their  knowledge  of  costs  and  prices  gave  them  an  un- 
opposed advantage  in  determining  what  the  fair  price 
should  be.  Another  drawback  in  these  "Fair  Price 
Committees"  was  their  unwillingness  to  resort  to  judicial 
power.  Infractions  of  regulations  were  handled  by  the 
Administration  at  Washington.  In  the  course  of  time, 
these  became  too  numerous  for  immediate  settlement. 
Rather  than  wait  for  the  long  processes  of  justice,  these 
"fair  price  boards"  preferred  to  dismiss  the  recalcitrant 
with  a  warning. 

When,  however,  alleged  violations  came  to  the  knowl- 
edge of  the  Federal  State  Food  Administrator,  he  re- 
ported the  case  to  the  Enforcement  Division  at  Wash- 
ington. A  hearing  was  then  granted  to  determine 
whether  there  had  been  a  violation  or  not,  and  if  so, 
what  fine  should  be  imposed.  After  a  decision  was 
reached,  an  order  was  signed  by  the  Food  Administra- 
tion and  forwarded  to  the  State  Administrator  who 
served  it  upon  the  guilty  party.  Orders  thus  served 
either  revoked  or  suspended  the  dealers  license,  or  im- 
posed a  fine  in  the  form  of  a  contribution  to  the  Red 
Cross.  Orders  intended  for  a  nonlicensee  were  usually 
directed  to  the  licensee  who  supplied  him  with  goods. 
The  licensee  was  ordered  not  to  supply  his  customer  with 
goods  till  further  notice. 


CONCLUSION. 


In  reviewing  the  work  of  the  Food  Administration  in 
the  attempt  to  pass  judgment  upon  its  policies  and  or- 
ganization, we  must  bear  in  mind  the  economic  conditions 
preceding  its  origin  and  the  law  from  which  it  took  its 
rise.  These  subjects  have  been  considered  in  Chapters 
II  and  III  respectively.  It  is  necessary  here  only  to  call 
attention  to  the  fact  that  the  Food  Administration  re- 
ceived its  authority  to  organize  and  function  from  the 
Food  Control  Act,  and  that  its  powers  were  no  greater 
than  the  act  allowed  for.  Limitations  and  defects  such 
as  were  sure  to  be  found  in  any  law  upon  so  complex  a 
problem,  will  naturally  find  their  reflection  in  the  organi- 
zation which  the  law  brought  forth. 

We  do  not  imply,  however,  that  the  Food  Control  Act 
was  weak  and  incapable  of  producing  an  efficient  system 
of  government  control.  On  the  contrary,  its  powers 
were  quite  extensive  and  fitted  for  an  adequate  attain- 
ment of  its  purpose.  We  may  complain  that  its  purpose 
was  poorly  conceived,  that  it  exempted  producers  and  re- 
tailers, that  it  made  no  provision  for  maximum  and 
minimum  prices  other  than  for  wheat,  that  it  contained 
no  prohibition  against  the  hoarding  of  soil  products,  and 
that  finally  it  was  designed  more  as  a  power  in  reserve 
than  for  any  practical  purpose.  There  is  truth  in  the 
complaint  but  not  the  whole  truth.  The  act  was  designed 
to  curb  profiteering  and  speculation.  These  mysterious 
phantoms  appeared  only  after  the  product  had  left  the 
hands  of  producers  and  disappeared  before  it  reached 
the  shops  of  retailers.  Meanwhile  the  product  had  re- 
ceived successive  increases  in  value.  The  profiteer  was  a 
hunted  animal.  People  cried  for  his  capture  and  the  law 
must  be  laid  to  trap  him.  As  for  producers,  the  need  for 
their  products  was  to  great,  to  hamper  them.  With 
these  objectives  not  too  clearly  in  mind,  Congress  framed 

114 


Conclusion.  115 

a  law  of  wide  powers  and  left  their  definition  to  be 
worked  out  later  as  circumstances  required. 

In  the  beginning  of  the  Food  Administration's  career, 
the  powers  it  possessed  were  only  dimly  seen.  Threats 
of  more  drastic  enforcements  were  occasionally  made  by 
the  Food  Administrator,  but  it  is  doubtful  whether  he 
believed  he  had  the  legal  power  of  enforcing  them.  The 
license  system  was  generally  in  operation  by  December  1, 
1917  and  it  was  thought  that  this,  with  the  generously 
proclaimed  offer  of  cooperation  on  the  part  of  business 
men,  would  be  sufficient.  We  can  hardly  expect  to  find 
resort  to  all  the  powers  contained  in  the  law  by  men  who 
were  suddenly  withdrawn  from  executive  positions  in 
business  life.  These  men — the  associates  of  Mr.  Hoover 
—would  naturally  advocate  as  little  government  inter- 
ference as  necessary.  Their  opposition  to  anything  that 
would  materially  alter  the  practices  of  business  and  pos- 
sibly lead  to  serious  after  war  tendencies  would  be  pro- 
nounced. The  Food  Administration,  then,  was  unwilling 
to  make  use  of  all  its  powers  at  the  outset. 

Since  the  aim  of  the  Food  Administration  was  to  in- 
terfere with  business  as  little  as  possible  and  to  exert  its 
influence  here  and  there  to  stimulate  production  and  to 
check  excessive  prices  we  can  not  expect  an  elaborate  and 
carefully  planned  out  system  of  rules  and  regulations 
covering  the  entire  field  of  industry.  Mr.  Hoover  stated 
that  ' 'these  interventions  hardly  ever  work  with  com- 
plete success,"  that  "they  are  the  lesser  of  two  evils,  the 
other  extreme  of  the  dilemma  is  the  high  cost  of  living, 
constant  vacillations  of  the  wage  scale  and  the  difficulties 
that  the  country  is  plunged  into  by  the  rise  of  wages  and 
the  consequent  inequalities  that  result  from  such 
rises."148 

An  outgrowth  of  the  circumstances  that  gave  it  rise, 
the  Food  Administration's  policy  was  simple  and 
pliable.149  A  complicated  machine  would  have  been  ill- 

148  Senate  Committee  of  Investigation  on  Shortage  of  Sugar. 
Dec.  1917,  p.  582. 

149  Taussig,  F.,  Price-Fixing  as   seen  by  a  Price-Fixer.    Quar. 
J.  of  EC.,  Feb.  1919,  p.  206. 


116  Conclusion. 

fitted  to  meet  the  constant  changes  that  were  everywhere 
taking  place  in  the  economic  and  industrial  world.  Some 
form  of  organization  whose  policies  could  be  rapidly  ad- 
apted to  fluctuating  conditions,  and  whose  spirit  and 
policies  harmonized  with  those  of  the  people  was  the  need 
of  the  hour.  Consequently  little  attempt  was  made  to  lay 
down  hard  and  fast  principles  or  to  provide  before  it 
was  needed  an  extensive  organization.  As  problems  ap- 
peared, they  were  attacked;  and  both  organization  and 
principles  took  form  as  the  circumstances  multiplied 
from  which  they  had  risen. 

The  keystone  principle  of  the  Food  Administration 
was  the  firm  belief  of  its  leaders  in  the  efficacy  of  volun- 
tary cooperation.  From  producer  to  consumer,  each  in- 
dividual was  made  to  feel  that  his  or  her  efforts  were 
needed  to  help  win  the  war.  This  sense  of  engendered 
responsibility  was  constantly  sought  and  emphasized  in 
a  variety  of  ways  by  Mr.  Hoover  and  his  associates.  It 
was  "a  matter  of  prevention,  not  cure."150  Much  more 
might  be  expected  from  the  policy  of  voluntary  co- 
operation than  from  the  exercise  of  any  legal  powers.  It 
was  altogether  a  sound  psychological  procedure  to  sur- 
charge the  people  with  patriotism  and  then  to  reap  its 
effects  in  good  will  and  hearty  effort. 

Obviously  it  would  be  impossible  to  expect  all  pro- 
ducers and  distributors  to  act  from  patriotic  motives, 
and  sufficient  evidence  was  had  before  the  Food  Control 
Act  was  framed,  to  make  necessary  the  grave  penalties 
which  it  contained.  "The  Food  Bill  has  drastic  powers, 
on  the  subject  of  extortion  and  profiteering,  but  the  de- 
termination of  what  •  profiteering  is,  is  rather  difficult 
until  after  a  period  has  elapsed,  that  is  until  after  the 
crime  has  been  committed."151 

Since  the  Act  contained  no  definition  of  what  consti- 
tuted profiteeering  and  the  Food  Administration  at  this 
time  had  not  ventured  to  add  any  light  upon  the  subject, 
the  determination  in  the  first  instance  of  whether  an  in- 


150  Ibid.,  p.  584. 

151  Ibid.,  p.  584. 


Conclusion.  117 

dividual  was  taking  a  fair  and  a  reasonable  profit  was 
left  to  the  conscience  of  each.  What  is  a  fair  and  reas- 
onable profit?  The  risks  of  business  enterprises  are  so 
great  that  the  determination  of  a  fair  and  reasonable 
profit  could  not  be  made  for  all  in  the  same  trade.  The 
risks  of  each  enterpriser  are  different  and  depend  upon 
numberless  circumstances  over  which  often  the  enter- 
priser has  no  control  and  little  anticipation.  Every 
variation  in  price,  in  demand  and  supply,  in  wages  and  in 
competition  tends  to  produce  a  variation  in  profits.  Some 
years  a  business  man  may  receive  no  profits  or  may  op- 
erate at  a  loss.  Another  year,  he  may  gain  great  sums. 
Shall  we  say  that  the  profit  of  a  successful  year  is  un- 
reasonable and  unfair,  or  shall  we  consider  profits  as  ex- 
tending over  a  period  of  several  years.  Again,  what  ex- 
tra profit  shall  we  allow  to  superior  business  ability? 
Shall  we  determine  profits  upon  the  average  business  in- 
comes and  put  a  penalty  upon  exceptional  ability? 

In  view  of  the  many  difficulties  surrounding  this  vex- 
ing problem  of  fair  and  reasonable  profits  we  are  not  sur- 
prised to  find  that  the  Food  Administration  did  not  at- 
tempt its  solution  until  it  became  urgent  to  do  so. 

The  Food  Control  Act  laid  down  the  principles  that 
producers  and  distributors  should  not  exact  more  than  a 
reasonable  profit  for  their  services.  The  word  "reason- 
able" was  not  defined  in  the  Act  and  moreover  had  never 
before  received  any  proper  legal  interpretation  by  any 
governmental  administrative  body.  "Up  to  this  time  no 
adequate  inquiry  has  been  found  upon  this  subject;  its 
discussion  has  been  solely  by  law  taken  for  granted/'152 
As  was  to  be  expected  such  lack  of  definition  was  the 
source  of  doubt  and  fear  in  the  minds  of  those  who  were 
subject  to  the  law,  and  tended  to  restrict  unjustly  and 
without  purpose  their  conduct  in  the  pursuit  of  ordinary 
business  transactions. 

This  serious  defect  in  the  law,  the  Food  Administra- 
tion attempted  to  supply,  by  defining  what  it  considered 
as  "reasonable."  Though  it  must  be  remembered  that 

152    Does  Price  Fixing  Destroy  Liberty?  Geo.  H.  Earle,  p.  38. 


118  *  Conclusion. 

when  the  act  was  drawn  up,  the  Food  Administration 
was  not  in  existence,  and  legislators  apparantly  gave 
little  thought  as  to  how  or  by  whom  the  powers  contained 
in  the  Act  would  be  exercised. 

President  Wilson,  in  Section  I,  "was  authorized  to 
make  such  regulations  and  to  issue  such  orders  as  are 
essential  effectively  to  carry  out  the  provisions  of  this 
act."  The  President  does  not  appear  to  have  defined 
what  reasonable  profits  Were,  more  than  his  statement 
that  any  profits  in  excess  of  prewar  profits  would  be 
construed  as  unreasonable.  Following  out  this  idea,  the 
Food  Administration  decided  that  as  applied  to  licensed 
"non-perishables"  "reasonable  profits  in  war  time  should 
not  exceed  the  profits  which  had  been  made  on  an  aver- 
age by  the  same  merchant  in  prewar  times  on  an  even 
market  under  freely  competitive  conditions."153  The  av- 
erage of  the  three  years  preceding  the  European  War 
was  taken  as  a  basis. 

Such  a  definition  still  left  the  interpretation  of  the 
word  "reasonable"  shrouded  in  obscurity.  Profits  of  diff- 
erent trades  not  only  varied  greatly,  but  wide  differences 
in  profits  were  found  even  for  those  engaged  in  the  same 
trade.  To  ascertain  whether  any  dealer  was  guilty  of 
taking  excessive  profits  would  require  an  investigation 
of  his  books.  The  ease  too,  with  which  profits  on  paper 
might  be  changed,  would  render  such  investigations  un- 
certain. This  interpretation  furthermore,  seemed  to 
overlook  the  fact  that  some  dealers  had  not  been  in 
business  during  the  three  years  preceding  the  war,  or 
otherwise  seemed  to  imply  that  new  enterprisers  should 
be  subject  to  the  same  conditions  as  far  as  profits  were 
concerned,  as  others  in  the  same  line  of  business  similarly 
placed. 

The  intention  of  the  Food  Administration  seemed  to 
be  to  eliminate  speculative  profits.  The  words  "on  an 
even  market"  as  applied  to  prewar  profits  were  designed 
to  rule  out  profits  that  had  been  taken  during  this  period 

153  Merritt,  A.  N.,  Wartime  Control  of  Distribution  of  Food, 
P.  98. 


Conclusion.  119 

from  the  sale  of  goods  on  a  rising  market.  The  problem 
here  presented  to  the  mind  of  the  already  perplexed  busi- 
ness man  was  one  that  could  be  solved  only  after  the  ad- 
vice of  an  expert  on  market  fluctuations,  and  possibly  not 
even  then.  Market  conditions  are  in  a  constant  state  of 
flux,  and  it  is  upon  correct  estimation  of  these  changes 
that  profits  accrue.  At  this  point,  it  can  be  seen  how  un- 
decided was  the  policy  of  the  Food  Administration.  Its 
attention  seemed  directed  to  the  fixing  of  profits  rather 
than  to  the  fixing  of  prices.  Instinctively  it  seemed  to 
fear  the  task  of  fixing  prices,  and  perhaps  recognized  the 
futility  of  attempting  to  do  so.  Yet  this  task  so  odious  to 
itself  was  shouldered  upon  business  men  under  the  peril 
of  indictment. 

Definite  limitations  on  profit  were  early  announced  for 
manufacturers  and  distributors  of  sugar  and  flour.  These 
margins  were  agreed  to  by  both  trades.  Provisions  were 
made  later  to  provide  for  the  increased  costs  of  doing 
business.  The  dealer  was  permitted  to  take  his  prewar 
percentage  of  profit  as  a  basis  for  present  profit.  Thus, 
"if  he  made  10  per  cent  on  an  article  before  the  war,  he 
might  make  10  per  cent  on  the  same  article  now."154  As 
the  prices  on  all  commodities  had  increased  this  percent- 
age in  actual  money  would  be  much  greater  than  previous 
to  the  war.  It  was  permitted  however,  with  a  view  to 
providing  for  increased  costs,  and  as  a  stimulus  to  pro- 
duction. 

The  same  objection  held  for  this  ruling  as  for  the  in- 
terpretation of  pre-war  profits.  The  dealer  still  found 
the  decision  of  what  profit  he  might  take  left  to  himself. 
Dishonest  dealers  might  increase  their  percentage  of  pro- 
fit without  fear  of  detection,  unless  as  happened  in  some 
cases  where  the  profits  exacted  were  so  exorbitant  as  to 
clearly  indicate  profiteering.  It  was  necessary,  therefore 
to  devise  some  method  of  regulating  profits  that  could  not 
be  as  easily  evaded,  and  at  the  same  time  wrould  place 
competing  dealers  upon  a  more  just  basis. 

154    Merritt,  A.  N.,  Wartime  Control  of  Distribution  of  Foods, 
p.  100. 


120  Conclusion. 

The  outcome  of  this  conviction  was  the  establishment 
by  the  Food  Administration  of  definite  maximum  mar- 
gins for  each  item.  The  problem  then  confronting  the 
Food  Administration  was  Whether  these  margins  should 
be  fixed  for  each  producer  with  reference  to  his  costs  of 
production  or  whether  the  same  margin  should  be  ap- 
plied to  all.  Owing  to  the  wide  range  of  costs  in  every  in- 
dustry and  among  producers  of  the  same  commodity  and 
the  difficulty  of  obtaining  a  true  knowledge  of  these  costs 
all  attempts  to  establish  proper  maximums  for  each  pro- 
ducer had  to  be  abandoned.  Differences  in  costs  arising 
from  advantages  of  fertility,  location  or  superior  effi- 
ciency bring  to  their  possessors  a  differential  or  rent 
which  is  appropriated  as  profits,  and  ordinarily  does  not 
result  in  lower  prices.155  The  price  is  the  same  for  all 
wheat  of  the  same  grade,  and  must  be  high  enough  to 
induce  "the  continued  production  of  the  high  cost  produc- 
ers. 

After  much  careful  investigation  and  study  into  the 
wholesale  and  retail  business,  the  Food  Administration 
announced  maximum  margins  for  wholesalers,  which 
were  followed  later  by  maximum  margins  for  retailers. 
These  margins  whether  expressed  in  cents  or  per  cents 
generally  provided  a  profit  sufficient  for  the  high  cost 
producers,  and  a  lesser  profit  for  the  producer  whose 
costs  were  not  so  high.  In  conjunction  with  these  mar- 
gins, the  prewar  profit  rule  was  still  in  effect,  which 
could  be  used  against  a  dealer  whose  profits  were  high 
and  who  sought  to  protect  himself  under  the  maximum 
margin. 

The  fixing  of  a  "reasonable"  price  when  the  supply  of 
a  commodity  is  below  normal  does  not  however  solve  the 
difficulty.  If  the  price  is  fixed  lower  than  the  ordinary 
competitive  price,  hoarding  and  increasing  consumption 
follow,  and  the  poor  are  unable  to  get  the  necessaries  of 
life.  Unless  some  system  of  rationing  and  of  priority  of 

155  Economic  Difficulties  in  the  way  of  successful  Govern- 
mental price-fixing.  The  Economic  World,  July  21,  1917,  P-  97- 


Conclusion.  121 

distribution  is  used  in  conjuction  with  price  fixing,  the 
latter  will  be  a  failure. 

Government  control  over  prices  when  once  begun  tends 
to  increase  and  evasions  on  the  part  of  those  subject  to 
control  only  intensify  the  efforts  of  those  in  authority  to 
enforce  regulations  with  the  result  that  production  is 
curtailed,  healthful  competition  is  ruined  and  initative 
crushed.  The  cost  of  installing  such  an  elaborate  system 
of  supervision  is  enormous,  and  must  be  met  sooner  or 
later  by  those  for  whose  benefit  it  was  designed. 

One  complaint  against  the  Food  Administration  was 
that  it  brought  men  into  its  fold  from  the  very  businesses 
and  industries  they  were  to  regulate.  It  was  impossible, 
that  these  men  controlling  large  interests  in  their  par- 
ticular line  of  business  should  become  so  altruistic  as  to 
forget  their  private  interests  in  the  endeavor  to  offer 
patriotic  service.  The  opportunities  at  hand  to  spread 
propaganda,  to  take  advantage  of  private  information  of 
large  government  orders,  and  of  market  conditions  were 
too  great  not  to  be  made  use  of.  Not  only  could  they 
bring  grist  to  their  own  mills  but  also  to  those  of  their 
trade.  The  Food  Administrator  was  even  accused  of  ap- 
pointing as  heads  of  divisions  men  whom  he  knew  would 
use  their  information  for  selfish  purposes.  Whether  or 
not  this  be  true  we  have  no  means  of  ascertaining.  It 
may  be  said  in  defense  of  utilizing  men  who  were  expert 
in  their  line  of  business  that  their  knowledge  was  ex- 
tremely necessary  for  the  handling  of  many  of  the  prob- 
lems confronting  the  Administration.  The  complexities 
of  market  conditions  alone  would  warrant  their  employ- 
ment. 

Whether  the  Food  Administration  did  a  wise  thing  by 
not  compensating  these  men  it  is  hard  to  say.  While 
bound  to  give  a  more  disinterested  service,  it  is  doubtful 
whether  they  would  be  inclined  to  leave  their  positions 
for  salaried  government  service.  The  government  could 
not  compensate  them  upon  the  basis  of  their  previous 
earning  capacity,  and  a  monetary  return  would  reduce 
the  glory  of  volunteer  service.  The  real  excuse  for  not 


122  Conclusion. 

paying   these   men,    must   doubtless   be   found    in    the 
enormous  cost. 

From  the  fore-going  pages,  it  will  appear  that  the' 
United  States  Food  Administration  received  wide  but 
somewhat  undefined  powers  from  the  Lever  Food  Con- 
trol Act.  The  chief  policies  of  the  Food  Administra- 
tion— its  dependence  upon  voluntary  cooperation  and  the 
license  system — were  provided  for  in  the  Act,  and  re- 
mained only  to  be  put  in  operation.  The  problem  of  what 
constituted  just  and  reasonable  profits  was  left  undefined 
in  the  Act.  This,  the  Food  Administration  partly  solved 
by  declaring  maximum  margins  for  wholesalers  and  re- 
tailers. The  lack  of  legal  definition  seems  to  have  been 
over-exaggerated  by  the  Food  Administration.  Fre- 
quently this  lack  was  made  the  plea  for  inaction.  As  an 
organization,  the  Food  Administration  was  extensive, 
but  loosely  constructed.  It  showed  itself  fairly  well 
adapted,  however,  to  meet  the  ever-changing  conditions 
of  the  time.  It  possessed  the  advantage  of  being  able  to 
recruit  many  of  the  country's  best  business  and  scientific 
men  and  place  them  in  positions  of  leadership.  The  or- 
ganization was  practical  and  efficient,  and  despite  the  de- 
fects mentioned,  was  a  credit  to  our  war-time  achieve- 
ments. 

In  the  pages  following  will  be  found  a  brief  account  of 
early  attempts  at  price-fixing. 


APPENDIX. 


EARLY  ATTEMPTS  AT  PRICE-FIXING. 


Examples  of  government  control  over  prices  are 
almost  as  old  as  organized  society  itself.  One  of  the  first 
attempts  recorded  is  that  of  the  State  of  Athens  three 
centuries  before  the  advent  of  Christianity.  The  Athenian 
statesman  sought,  first  of  all  to  make  provision  for  an 
adequate  supply  of  grain,  for  the  Athenians  consumed 
more  than  they  produced.  Much  grain  had  to  be  im- 
ported from  Pontius,  Geraestos  and  other  places. 
Boech156  estimates  that  the  Athenians  imported  one  third 
of  the  total  amount  needed  for  consumption ;  while  Bots- 
ford157  places  the  amount  at  one  half.  Cornering  the 
grain  market  was  attempted  by  speculators  in  Athens  in 
those  days  and  stringent  regulations  were  laid  down  by 
the  State  to  check  their  activities.  No  one  was  allowed 
to  buy  more  than  fifty  phormi  at  a  time,158  and  the  profit 
on  a  basket  could  not  be  more  than  an  obol.*  Despite 
these  laws,  however,  dealers  often  bought  up  all  the  grain 
they  could  to  sell  it  the  same  day  for  a  higher  price.159 
The  State,  in  order  to  remedy  these  evils  appointed  a 
body  of  officers  whose  duty  it  was  to  investigate  and  re- 
gulate the  supply  and  the  prices  of  grain.  They  were 
also  charged  with  the  inspection  of  bread  and  meal,  that 
these  might  be  sold  according  to  the  legal  weight  and 
price.  Storehouses  were  erected  for  grain  from  which 
the  people  could  purchase  at  reasonable  prices,  and  in 
some  cases  receive  grain  gratuitously.  Notwithstand- 
ing the  severe  penalty  of  death  incurred  by  the  offenders 

156  Boech,  A.,  The  Public  Economy  of  the  Athenians,  p.  114. 

157  Botsford,  E.  W.  &  E.  G.  Sihler,  Hellenic  Civilization,  p.  426. 

158  Botsford,  Opus  Cit.,  p.  426. 

*  An  obol  was  equal  to  one  sixth  of  a  drachma,  whose  value 
varied  from  9  to  17  cents. 

159  Cf.  Works  of  Lysias,  XXII  (against  the  grain  dealers). 

123 


124     Appendix — Early  Attempts  at  Price-Fixing. 

of  these  regulations,  it  appears  that  violations  were  fre- 
quent.160 

Among  the  early  examples  of  price-fixing  in  the  Ro- 
man Empire  is  that  of  the  Emperor  Dioclitian.  who  in 
301  A.  D.  attempted  to  check  prices  and  perhaps  also  to 
impose  his  will  upon  the  people  for  the  sake  of  the  plea- 
sure it  afforded  him.  Dioclitian  fixed  prices  for  all  com- 
modities and  also  for  wages.  A  list  of  some  of  the  prices 
so  fixed  may  be  found  in  Palgraves'  "Dictionary  of  Poli- 
tical Economy."161  The  severe  penalties  of  deportation 
and  death  attended  the  violation  of  this  edict,  yet  it  does 
not  seem  to  have  been  obeyed.  Whatever  good  the  edict 
could  have  effected  was  more  than  offset  by  the  vexatious 
strictures  it  placed  upon  freedom  of  production  and  im- 
portation. 

Sixty  years  later  the  Emperor  Julian  tried  the  same 
experiment  with  similiar  results.  An  account  of  both 
attempts  is  found  in  Abbot's  "The  Common  People  of 
Ancient  Rome." 

"When  he  (The  Emperor  Dioclitian)  had  brought  on  a 
state  of  exceeding  high  prices  by  his  different  acts  of  in- 
justice, he  tried  to  fix  by  law  the  prices  of  articles  offered 
for  sale.  Thereupon  for  the  veriest  trifles  much  blood 
was  shed,  and  out  of  fear  nothing  was  offered  for  sale 
and  scarcity  grew  much  worse,  until,  after  the  death  of 
many  persons,  the  law  was  repealed  from  mere  neces- 
sity." 

"The  Emperor  Julian  sixty  years  later  fixed  the  price 
of  wheat  for  the  people  of  Antioch  by  an  edict.  The 
holders  of  grain  hoarded  their  stock.  The  emperor 
brought  supplies  of  it  into  the  city,  from  Egypt  and  else- 
where, and  sold  it  at  the  legal  price.  It  was  bought  up 
by  speculators,  and  in  the  end,  Julian  like  Dioclitian  had 
to  acknowledge  his  inability  to  cope  with  an  economic 
law."*162 

160  Cf.  Works  of  Lysias,  XXII,. 

161  Palgrave,    Dictionary    of    Political    Economy,   cf . :    "Justum 
Pretium." 

162  Abbott,  The  Common  People  of  Ancient  Rome,  p.  274. 

*  The  law  of  supply  and  demand,  according  to  economic  the- 
ory, is  a  basis  factor  in  determining  prices. 


Appendix — Early  Attempts  at  Price-Fixing.     125 

The  Just  Price  of  the  Medieval  Economists. 

There  is,  perhaps,  no  medieval  theory  in  economics 
which  has  received  greater  attention  from  modern  writ- 
ers than  the  teaching  of  the  just  price.  The  doctrine  of 
the  just  price  was  set  forth  in  all  the  manuals  in  theology 
during  the  Middle  Ages,  for  economics  was  not  then  as  it 
is  now,  a  special  science.  In  the  'Summa'  of  St.  Thomas 
the  doctrine  of  the  just  price  is  treated  as  a  particular 
case  under  the  general  caption  of  'contract  of  sale'  He 
states  the  argument  from  justice  in  regard  to  prices  as 
follows :  "Apart  from  fraud,  we  may  speak  of  buying  and 
selling  in  two  ways.  First,  as  considered  in  themselves 
and  from  this  point  of  view  buying  and  selling  seem  to 
be  established  for  the  common  advantage  of  both  parties, 
one  of  whom  requires  that  which  belongs  to  the  other 
and  vice- versa.  Now,  whatever  is  established  for  the 
common  advantage  should  not  be  more  of  a  burden  to 
one  part  than  to  another,  and  consequently  all  contracts 
between  them  should  observe  equality  of  thing  and  thing. 
Again,  the  quality  of  a  thing  that  comes  into  human  use 
is  measured  by  the  price  given  for  it,  for  which  purpose 
money  was  invented.  Therefore,  if  either  the  price  ex- 
ceed the  quantity  of  the  thing's  worth,  or  conversely  the 
worth  of  the  thing  exceed  the  price,  there  is  no  longer  the 
equality  of  justice;  and  consequently  to  sell  a  thing  for 
more  than  its  worth,  or  to  buy  it  for  less  than  its  worth, 
is  in  itself  unjust  and  unlawful."  This  teaching  was  re- 
peated and  emphasized  by  nearly  all  the  succeeding  theo- 
logians and  canonists  in  the  Middle  Ages.  Thus  Biel 
writes ;  "Si  pretium  excedit  quantitatem  valoris  rei,  vel  e 
converso  tolleratur  equalitas,  erit  contractus  iniquus."163 

The  idea  of  a  just  price  is  essentially  Christian.  Roman 
Law  allowed  great  freedom  of  contract  in  sales.  Buyers 
and  sellers  were  left  to  their  own  shrewdness  or  folly 
and  assumed  risks  accordingly.  Only  in  the  case  of 
manifest  fraud  was  the  seller  protected  by  law.  It  is 

163  Repertorium  generale  inventarium  super  quator  libros  sen- 
tentiarum,  IV,  XV,  10.  "If  the  price  exceeds  the  value  of ^  the 
thing  or  conversely  destroys  equality,  the  contract  is  unjust." 


126    Appendix — Early  Attempts  at  Price-Fixing. 

stated  that  if  the  seller  received  only  half  of  the  value  of 
the  thing,  the  contract  could  be  voided,  unless  the  buyer 
restored  the  other  half.  Neither  St.  Thomas  nor  St. 
Augustine  have  answered  the  question  that  has  long 
vexed  the  minds  of  economists :  How  do  we  arrive  at  the 
just  price?  What  are  its  determinants?  St.  Thomas 
has  not  recorded  this  vital  piece  of  information,  not  how- 
ever, because  it  did  not  occur  to  him  nor  because  it  pre- 
sented difficulties  hard  to  solve,  but  because  he  took  it 
for  granted  that  the  traders  of  the  day  were  familiar 
with  the  mechanism  of  the  just  price.  The  writings  of 
the  canonists  supply  this  omission.  Incidentally  it  may 
be  mentioned  here  that  all  theologians  and  canonists  were 
in  agreement  in  recognizing  the  power  of  the  state  to  fix 
prices.  Gerson  states  that:  The  law  may  justly  fix  the 
price  of  things  which  are  sold,  both  movable  and  im- 
movable,— As  price  is  a  kind  of  a  measure  of  the  equality 
to  be  observed  in  contracts,  and  as  it  is  sometimes  diffi- 
cult to  find  that  measure  on  account  of  the  varied  and 
corrupt  desires  of  men,  it  becomes  expedient  that  the 
medium  should  be  fixed  according  to  the  judgment  of 
some  wise  man — In  the  civil  state,  however,  no  one  is  to 
be  decreed  wiser  than  the  law-giving  authority,  there- 
fore, it  behooves  the  latter,  whenever  it  is  possible  to  do 
so,  to  fix  the  just  price,  which  may  not  be  exceeded  by 
private  consent,  and  which  must  be  enforced.164 

Langenstein  in  his  famous  work  on  Contracts  lays 
down  the  rules  that  should  guide  a  prince  in  the  fixing  of 
a  just  price.  Circumstances  of  time,  and  of  place  and  the 
conditions  of  the  people  should  be  considered.  Again, 
the  commodity  is  to  be  measured  with  the  intensity  of  the 
desires  for  it.  Some  commodities  are  necessary  by  na- 
ture, as  flour,  salt,  etc.;  others  are  relatively  necessary, 
as  those  needed  to  sustain  one's  state  in  life,  for  example, 
cloth  of  a  certain  texture  for  one's  garments.  Other 
commodities  are  sought  for  pleasure  or  distinction  (lux- 
uries) .  The  general  rule  is  that  the  prince  must  seek  to 
find  a  medium  between  a  price  so  low  as  to  render  labor- 

164    De  Contractibus  I,  19. 


Appendix — Early  Attempts  at  Price-Fixing.     127 

ers,  artisans,  and  merchants  unable  to  maintain  them- 
selves suitably  and  one  so  high  as  to  prevent  the  poor 
from  obtaining  the  necessities  of  life.  In  the  article  in  the 
Catholic  Encyclopedia  under  Political  Economy,  the 
writer  places  as  a  basis  of  the  just  price  a  living  wage: 
the  just  price  of  an  article  included  enough  to  pay  fair 
wages  to  the  worker — that  is,  enough  to  enable  him  to 
maintain  the  standard  of  living  of  his  class. 

Ideas  of  justice  vary  with  individuals  and  much  of  the 
misconception  surrounding  the  just  price  teaching  is  due 
to  the  fact  that  each  interpreter  injects  his  own  meaning 
of  justice  into  the  technical  concept  of  price.  The  point 
to  be  emphasized  here  is  that  justice  was  considered  an 
objective  thing,  and  the  living  embodiment  of  justice  was 
the  civil  authority.  Consequently,  when  that  authority 
or  any  body  of  men  or  committee  delegated  by  it  fixed  a 
price  as  just,  using  all  the  ordinary  standards  of  judg- 
ment, that  price  ipso  facto  was  held  as  just.  iThe  guild 
masters  or  who  ever  fixed  prices  were  not  free,  of  course, 
to  use  any  arbitrary  methods  in  determining  it.  The  just 
price  must  be  based  on  the  natural  price,  which  was  the 
price  that  would  tend  to  be  fixed  in  a  free  market.  Any 
change  in  the  scarcity  or  demand,  or  the  cost  of  produc- 
tion would  produce  a  change  in  the  natural  price  and  thus 
necessitate  a  revision  in  the  just  price.165 

Prices  were  not  always  fixed  by  law  during  the  Middle 
Ages.  Where  the  law  did  not  decide  the  price,  the  matter 
was  left  to  buyers  and  sellers,  who  based  their  estimation 
of  the  value  of  the  thing  as  accurately  as  the  principles 
of  justice  would  allow.  The  price  arrived  at  from  the 
'communis  estimatio'  was  known  as  the  natural  or  com- 
mon price.  Much  discussion  has  been  given  to  the  mean- 
ing of  'communis  estimatio,'  some  attempting  to  show 
that  it  is  the  same  as  'social  valuation'  as  found  in  mod- 
ern theories  of  value.  The  natural  price,  thus  based  on 
something  not  capable  of  accurate  measure  could  not,  as 
we  may  reasonably  expect,  be  worked  out  with  mathe- 

165  G.  O'Brien,  An  Essay  on  Medieval  Economic  Teaching, 
p.  107. 


128     Appendix — Early  Attempts  at  Price-Fixing. 

matical  precision.  Nevertheless,  the  theologians  laid 
down  rules  that  fixed  the  common  price  within  fairly  de- 
finite bounds  when  they  recognized  the  three-fold  divi- 
sion of  price — the  highest,  the  lowest  and  the  medium. 
Any  price  exceeding  the  highest,  or  below  the  lowest 
was  unjust.  It  should  be  noted  that  the  just  price  of  the 
medieval  theologians  Was  not  a  fixed  price.  Between  the 
highest  and  the  lowest  margins  there  was  a  considerable 
space  through  which  it  might  travel  with  perfect  ethical 
freedom.  A  price  could  be  termed  just  theoretically 
when  it  received  authoritative  promulgation  the  same  as 
a  law.  Practically,  however,  it  would  be  a  travesty  to 
define  any  price  as  just  which  manifestly  disregarded  the 
economic  forces  which  determine  prices;  namely,  supply 
and  demand.  These  forces  operated  just  as  potently  in 
guild  times  as  they  do  to-day.  Added  to  these  two  price 
determinants  was  a  third,  which  doubtless,  had  consider- 
able influence  namely,  custom.  Many  of  our  price 
fluctuations,  it  must  be  remembered,  are  due  to  changes 
in  the  volume  of  money.  Since  the  production  of  metals 
was  slow,  and  commerce  between  nations  was  undevel- 
oped, the  supply  of  money  media  in  the  Middle  Ages 
tended  to  remain  unchanged  and  hence,  this  disturbing 
influence  upon  prices  was  not  felt.  Supply  and  demand, 
moreover,  restricted  to  small  areas,  with  little  expansion 
of  wants  and  few  substitutes  for  these  wants,  could  be 
measured  quite  accurately.  Prices  changes,  therefore 
were  not  frequent,  and  after  the  lapse  of  years,  custom 
became  arbiter  in  keeping  prices  stable.  Any  price  that 
notably  exceeded  the  customary  price  without  a  manifest 
cause  was  quite  naturally  stamped  as  unjust.  In  our 
complex  economic  organism,  this  factor  of  custom  as  a 
price  stabilizer  has  largely  lost  its  influence.  Because 
prices  fluctuate  more  often  and  with  greater  swings  to- 
day, we  cannot  therefore  assume  that  our  prices  are  less 
just  than  those  of  the  Middle  Ages.  While  our  system 
is  more  complex,  it  is  at  the  same  time  more  sensitive, 
and  in  nothing  is  this  sensitiveness  more  clearly  seen 
than  in  price  changes. 


Appendix — Early  Attempts  at  Price-Fixing.     129 

We  now  come  to  another  example  of  price-fixing. 
In  the  archives  of  the  University  of  Oxford  are  preserved 
volumes  containing  the  accounts  of  the  clerks  of  the  mar- 
ket, from  the  years  1645  to  1658  inclusive.  These  ac- 
counts exhibit  the  prices  and  the  quantities  of  wheat 
(corn)  sold,  together  with  the  names  of  the  buyers  for 
each  market  day  during  the  above-named  years.  In  ad- 
dition to  the  price  of  wheat  (corn),  the  prices  of  malt, 
barley,  beans,  oats  and  peas  are  given.166  A  Board  of 
Commissioners  was  authorized  to  examine  the  weights 
and  measures,  and  to  fix  the  weight  of  bread  according 
to  the  market  price,  and  on  some  occasions  to  fix  both  the 
weight  and  the  price. 

"First  they  shall  inquire  the  price  of  wheat,  that  is  to 
wit,  how  a  quarter  of  the  best  wheat  was  sold  the  last 
market  day  and  how  the  second,  the  third  and  how  a 
quarter  of  barley  and  oats." 

"After,  upon  how  much  increase  or  decrease  in  the 
price  of  wheat  a  baker  ought  to  charge  the  assize  and 
weight  of  his  bread." 

"Also,  how  much  the  wastel  of  a  farthing  ought  to 
weigh,  and  all  other  manner  of  bread,  after  the  pense  of 
a  quarter  of  wheat  they  present." 

"And  for  default  in  the  weight  of  bread,  a  baker  ought 
to  be  amerced  or  to  be  judged  into  the  pillory  according 
to  the  law  and  the  custom  of  the  court."167 

In  these  records  are  found  the  original  orders  for  fix- 
ing the  weight  of  bread,  and  the  changes  as  required  by 
the  market  fluctuations  of  wheat  and  other  commodities. 
The  weight  of  the  loaf  was  ordinarily  adjusted  to  the 
market  price,  but  occasionally  the  market  price  was  set 
aside  for  one  fixed  by  the  Commissioners.  On  the  9th  of 
September,  1647,  for  example,  the  market  price  of  corn 
was  49s.  4d.  the  quarter;  the  Commissioners  on  that 

same  day  "agreed  the  price  to  be  47s,  the  quarter."     The 

• 

166  Lloyd,      W.      F.,      Prices      of      Corn      in      Oxford      (Pub. 
MDCCCXXX),  London,  p.  2. 

167  Ibid.,  p.  4. 


130     Appendix— Early  Attempts  at  Price-Fixing. 

price  of  beer  was  fixed  by  the  price  of  malt  as  appears 
from  the  following  record : 

"Malt  being  at  17s.  4d.  the  quarter,  the  barrel  of 
double  beer  is  to  be  at  8s.  8d.  and  the  middle  and  single 
beer  proportionable,"  Viz: 

"Double  beer    8s.  8d. 

"Middle  beer    6.  6d. 

"Single  beer 4s.  4d. 

and  the  ale  at  4s.  8d.  the  quarter." 

A  proclamation  issued  in  1545  concerning  corn  and 
grain  empowered  the  commission  to  search  houses  and 
barns  for  hidden  supplies  and  sell  them  in  the  market 
and  also  to  fix  the  prices  of  these  commodities  when  they 
shall  judge  such  to  be  necessary.  It  states  that  certain 
subjects  "who  having  more  respect  to  their  own  private 
lucre  and  advantage  than  to  the  common  weal  of  this  his 
Highnesses  realm,  have  by  diverse  and  sundry  means  ac- 
cumulated and  got  into  their  possession  a  great  number 
and  multitude  of  corn  and  grain — and  do  wilfully  detain 
and  keep  in  their  possession — intending  thereby  for  to 
cause  the  prices  of  corn  to  rise,  so  that  they  may  sell 
their  corn  and  grain  at  such  unreasonable  prices  as  they 

will "168    This  proclamation  orders  the  justices  of  the 

peace  to  search  houses  and  barns  and  yards  of  all  per- 
sons accustomed  to  sell  corn  or  gain  and  to  bring  or  to 
cause  to  be  brought  the  surplus  to  the  market. 

Such  interference  on  the  part  of  the  government  to- 
day would  constitute  a  direct  assault  upon  our  cherished 
principle  of  economic  freedom.  Business  enterprise 
would  lack  the  attraction  of  unregulated  profits.  Fear  of 
punishment  would  stifle  initative.  Yet  viewing  the  con- 
ditions in  which  this  system  operated,  we  can  easily  see 
the  need  of  some  such  supervision.  In  the  above-men- 
tioned period,  supply  and  demand  was  necessarily  local. 
This  condition  would  enable  individuals  to  monopolize  a 
commodity  for  several  days  with  well-nigh  complete  suc- 
cess. Markets  were  scattered,  communication  was  slow, 

168  A.  E.  Bland  &  Others,  "English  Economic  History,"  pp. 
367-8. 


Appendix — Early  Attempts  at  Price-Fixing.     131 

and  substitutes  were  few.  There  were  no  powerful  com- 
binations of  capital  to  impede  regulatory  measures  in 
favor  of  the  consumer.  Conditions,  therefore,  fostered 
government  supervision  and  made  it  effective. 

Price-Fixing  During  the  French  Revolution. 

Another  attempt  to  fix  prices  was  made  during  the 
French  Revolution.  Owing  to  the  blockage  of  the  British 
fleet  importation  of  foodstuffs  was  at  an  end.  Added  to 
this  was  the  shortage  caused  by  a  succession  of  bad  crops. 
These  factors,  however  were  insignificant  in  bringing 
about  high  prices  and  hardships  when  compared  to  the 
over  issues  of  paper  money  by  the  government.  Hard 
pressed  for  money  to  finance  her  military  operations,  the 
government  resorted  to  the  temporary  expediency  of  fre- 
quent issues  of  paper  money.  With  each  issue  the  prices 
of  commodities  increased.  Soon  the  value  of  paper 
money  so  depreciated  that  people  Were  unwilling  to  take 
it  in  exchange  for  commodities  or  services.  This  hin- 
dered the  circulation  of  goods  to  a  great  extent,  for  the 
poor  had  no  money  to  pay  for  goods  than  the  almost 
worthless  paper. 

Measures  were  taken  by  the  City  of  Paris  and  other- 
cities  to  check  the  constant  rise  in  prices.  First,  an  at- 
tempt was  made  to  get  control  of  the  grain  supplies,  in 
order  to  sell  flour  to  bakers  at  reduced  prices.  "Flour," 
wrote  Roland  to  the  Administration  of  Paris,  "comes  to 
62  livres  a  sack,  and  to  keep  down  the  price  of  bread  it 
has  been  sold  to  bakers  at  54  livres,  a  daily  loss  of  12,000 
livres."169 

On  April  16,  1793,  the  administration  of  Paris  ad- 
dressed a  petition  to  the  Convention  demanding  that 
maximum  prices  for  grain  be  fixed.  After  much  debate 
the  Convention  decided  to  fix  the  maximum  price  for  all 
grains.  The  purpose  of  this  regulation  was  to  eliminate 
as  far  as  possible  the  middleman's  profit.  It  soon  became 
evident,  both  to  the  people  and  to  the  Commission  that 
other  commodities  besides  grain  would  have  to  be  con- 
trolled. Thus  maximum  prices  were  fixed  for  all 

169    Les  Archives  Parlementaries,  V.  LIII,  p.  477- 


132    Appendix — Early  Attempts  at  Price-Fixing. 

primary  and  secondary  necessities.  Moreover,  the  Com- 
mission also  decreed  that  the  maximum  or  highest  figure 
respectively  of  salaries,  wages  and  piece-work  by  the  day, 
shall  be  fixed  up  to  the  September  following  by  the  Gen- 
eral Councils  of  the  Commune  at  the  same  rate  as  in 
1790,  with  half  that  sum  in  addition ....  Prices  up  to  this 
time  had  been  fixed  upon  the  basis  of  those  prevailing  in 
1790  plus  33  and  one  third  per  cent.  This  broad  and  in- 
discriminate method  of  determining  prices  worked  to 
"injure  the  small  trades,  and  to  profit  the  greater  ones." 
To  fix  a  just  price  injurious  to  no  one,  it  was  thought 
necessary  to  know  the  "value  of  each  on  production,"  to 
which  should  be  added  a  five  per  cent  profit  for  retailers 
and  a  five  per  cent  profit  for  wholesalers.  A  gigantic  in- 
quiry was  begun  forthwith,  to  establish  the  cost  of  pro- 
duction for  primary  and  secondary  necessities.  This  in- 
quiry was  never  finished,  for  price-fixing  was  soon  seen 
to  be  productive  of  greater  evils  than  it  attempted  to 
remedy. 

A  fixed  price  that  is  considerably  lower  than  what 
could  be  got  in  the  market  will  hardly  ever  be  successful. 
In  times  of  scarcity  producers  expect  high  profits,  and 
cannot  be  prevailed  upon  to  market  their  goods  unless  a 
generous  profit  is  included  in  the  fixed  price.  During  the 
Revolution,  prices  were  fixed  too  low.  "As  soon  as  we 
fixed  the  price  of  wheat,  rye  and  of  mixed  wheat  and  rye 
we  saw  no  more  of  these  grains.  The  other  kinds  not 
subject  to  the  maximum,  were  the  only  ones  brought  in. 
What  is  the  inference?  The  establishment  of  a  maxi- 
mum brings  famine  in  the  midst  of  abundance.  What  is 
the  remedy?  Abolish  the  maximum."170 
Price-Fixing  in  the  United  States  During  and  After  the 
Revolutionary  War. 

The  economic  distress  left  in  the  wake  of  the  Ameri- 
can Revolutionary  War  is  known  to  every  student  of  his- 
tory and  economics.  Due  to  the  enormous  issues  of 
paper  money  both  by  the  Continental  Congress  and  the 
individual  states,  values  rapidly  depreciated,  and  prices 

170  G.  Lefebre,  Documents  relatifs  a  1'Histoire  des  Substances 
dans  le  District  de  Bergues,  Vol.  I,  PP-347-87- 


Appendix — Early  Attempts  at  Price-Fixing.     133 

rose  to  unprecedented  heights.  By  January,  1777,  a  pre- 
mium on  coin  was  fixed  at  five  per  cent.  As  early  as  Feb- 
ruary of  the  preceding  year  high  prices  had  begun  to  re- 
ceive the  attention  of  a  Committee  of  Representatives. 
"For  months  thereafter  petitions  poured  into  the  As- 
sembly representing  that  merchants  and  farmers  were 
charging  exorbitant  prices  for  their  goods,  and  praying 
for  legislation."171 

On  June  19,  1776,  the  Massachusetts  General  Assembly 
by  resolve  temporarily  prohibited  the  transportation  of 
provisions  out  of  the  state.172  On  September  4th  the  pro- 
hibition was  extended  to  lumber. 

It  soon  became  apparent  that  no  state  could  deal  with 
the  problem  of  high  prices  single-handed,  and  that  any 
attempt  to  regulate  prices  in  one  state  would  be  futile 
until  bordering  states  would  agree  to  the  same  regula- 
tions. This  conviction  led  to  a  Convention  of  Committees 
on  December  25th,  1776,  from  the  States  of  New  Hamp- 
shire, Massachusetts,  Rhode  Island  and  Connecticut 
which  met  at  Providence,  R.  I.  for  the  purpose  of  recom- 
mending a  scale  of  commodity  prices  for  the  several 
States.  The  Committee  went  into  the  matter  and  fur- 
nished a  price-list  which  included  almost  every  commod- 
ity for  which  money  could  then  be  expended  in  New  Eng- 
land. The  recommendations  of  the  Committee  were  ac- 
cepted in  Massachusetts  and  immediately  put  into  prac- 
tice in  Boston  and  other  towns,  under  the  Act  to  Prevent 
Monopoly  and  Oppression. 

This  Act  was  to  remain  in  force  for  three  years,  but  its 
life  was  less  than  a  year.  It  was  repealed  in  October 
1777  to  provide  for  an  act  of  greater  territorial  area. 
The  following  month  Congress  divided  the  States  into 
three  groups  and  recommended  Conventions  for  each  of 
the  three  for  the  purpose  of  fixing  the  prices  of  labor  and 
commodities.173 

The  States  sending  delegates  to  the  New  England  divi- 

171  Publications  of  the  Colonial  Soc.  of  Mass.,  Vol.  X,  p.  116. 

172  Ibid.,  p.  117. 

173  Massachusetts  Province  Laws,  Vol.  V,  pp.    73-738. 


134      Appendix— Early  Attempts  at  Price-Fixing. 

sion  were  New  Hampshire,  Connecticut,  New  York, 
Massachusetts,  Rhode  Island,  New  Jersey  and  Pennsyl- 
vania. The  Convention  was  held  at  New  Haven,  Conn., 
and  there  drew  up  a  scale  of  prices  for  the  New  England 
division.  Some  States  refused  to  abide  by  the  prices  de- 
termined in  this  convention,  others  adopted  them  but  ex- 
perienced such  difficulty  in  putting  them  into  practice 
that  the  attempt  had  to  be  abandoned. 

The  citizens  of  Philadelphia  met  in  the  State  house  on 
May  25th,  1779  and  adopted  resolutions  to  enforce  a 
schedule  of  prices  drawn  up  by  a  Special  Committee  a 
few  days  before.174 

In  a  report  of  the  Committee  of  the  Town  of  Bingham, 
Mass.,  1779,  the  following  resolutions  were  laid  down  re- 
garding the  prices  of  commodities :  "First,  resolved  that 
from  after  the  Tenth  day  of  August  instant  the  following 
articles  of  produce,  Manufactures  and  Labor  be  not  sold 
at  higher  prices  than  is  hereafter  affixed  to  them  Vig  W : 
India  Rum  L6-6s  pr  gallion.  N :  England  Do :  L4-16  Mo- 
lasses L4-7.  Coffee  18s  pr.  Ib.  Brown  sugar  from  11s  to 
14s  pr.  Ib.  Chocolate  24s  pr.  Ib.  Bohea  Tea  L5  pr.  Ib. 
Cotton  36s  pr.  Ib.  German  Steel  36s  pr.  Ib.  Salt  of  the 
best  quality  L9  pr.  Bushel."175 

Indian  Corn    L4..10  Fresh  Beef   Lo..5..9 

Rye    6 . .   0  Mutton    4 . .  0 

Wheat    9       0  Veal  4..0 

Barley   2.. 16  Lamb 4..0 

Oats 1..16  Butter   12.. 0 

Beans     9...0   Cheese     6.  .0 

Potatoes 1..10 

Turnips 1 . .  10 

These  prices  were  fixed  only  to  be  disregarded.  The 
faith  these  law-makers  placed  in  statutes  seemed  to  tri- 
umph over  the  fruits  of  experience.  The  fault,  they 
thought,  was  not  in  price-fixing  legislation  but  in  the  un- 
governable spirit  of  the  people.  After  various  other  at- 

174  The  Colonial  Society  of  Mass.,  Vol.  X,  p.  127. 

175  Ibid.,  p.  116. 


Appendix — Early  Attempts  at  Price  Fixing.     135 

tempts  to  fix  prices  in  many  towns  in  New  England,  the 
experiment  Was  definitely  abandoned. 

The  results  of  this  study  show  that  price-fixing  is  an 
artificial  arrangement  which  seriously  disturbs  the  op- 
eration of  economic  laws  and  interferes  with  business 
activity ;  that  the  more  directly  prices  are  fi 
chance  they  have  of  being  observed  and  that 
of  price  fixing,  to  be  successful,  must  be  based  on  a  close 
adherence  to  economic  principles  and  market  conditions. 
Direct  price-fixing  has  usually  failed  because  of  its  dis- 
regard for  these  principles  and  conditions.  A  system  of 
indirect  price  control,  such  as  exemplified  by  the  United 
States  Food  Administration  interfers  with  the  economic 
system  as  little  as  possible.  It  achieves  its  result  by  ask- 
ing instead  of  demanding. 


BIBLIOGRAPHY. 


The  Official  Bulletin,  published  by  the  Government, 
and  the  Commercial  and  Financial  Chronicle  give  es- 
comprehensive  statements  of  the  formal  controls 
ere  adopted.  A  much  fuller  bibliography  on 
this  subject  has  been  prepared  by  the  Congressional 
Library  at  Washington. 

BOOKS. 

Abbott,  F.  F.     The  Common  People  of  Ancient  Rome. 

New  York.  C.  Scribner's  Sons,  1911. 
Bland,  A.  E.  and  Others.     English  Economic  History. 

London,  G.  Bell  &  Sons,  1915. 

Boeckh,  A.     The  Public  Economy  of  the  Athenians.  Bos- 
ton, Little,  Brown  &  Co.,  1857. 
Clark,  J.  B.     The  Problem  of  Monopoly.     New  York, 

The  Columbia  University  Press,  1904. 
Cunningham,   Wm.     The  Growth  of  English  Industry 

and  Commerce,  5th  ed.,  Cambridge  University  Press, 

1910-1912,  Vol.  3. 
Davis,  A.     The  Limitation  of  Prices  in  Massachusetts 

1776-79.       Boston,  Publications  of  Mass.   Colonial 

Society,  Vol.  10. 

Earle,  G.  H.    Does  Price-fixing  Destroy  Liberty?  Phila- 
delphia, 1920. 
Fisher,  J.    Stabilizing  the  Dollar.       New  York,  E.  P. 

Button  &  Co.,  1919. 
Gephart,  W.  F.     Some  Economic  and  Legal  Aspects  of 

Fixed  Prices.  Washington  University  Studies,  Apr., 

1916,  Vol.  2,  pt.  2. 
Gray,  H.  L.     War  Time  Control  of  Industry.  New  York, 

MacMillan,  1918. 
Guyot,  Yves.     Where  and  Why  Government  Ownership 

Failed.  (Tr.  from  the  French  by  H.  F.  Baker) .  New 

York,  MacMillan,  1914,  pp.  175-180. 
136 


Bibliography.  137 

Kellogg,  V.  L.  Herbert  Hoover,  the  Man  and  His  Work. 
New  York,  D.  Appleton  &  Co.,  1920. 

Kellogg,  V.  L.  The  Food  Problem.  New  York,  Mac- 
millan,  1917.  -— 

Laughlin,  J.  L.  Money  and  Prices.  Newa||Mk,  C. 
Scribner's  Sons,  1919. 

Litman,  S.  Prices  and  Price  Control  in  Grea^Britain 
and  the  United  States.  New  York,  Oxford  Univ. 
Press,  1920. 

Merritt,  A.  N.  War  Time  Control  of  Distribution  of 
Food.  New  York,  Macmillan,  1920. 

Meyer,  E.  War  Profiteering,  Some  Practical  Aspects  of 
Its  Control.  Washington,  D.  C.,  1917. 

O'Brien,  G.  Essay  on  Medieval  Economic  History. 
New  York,  Longman's  Green  Co.,  1920. 

Philip,  A.  J.  Rations,  Rationing  and  Food  Control.  Lon- 
don, The  Book  World,  1918. 

Rogers,  J.  E.  The  Economic  Interpretation  of  History. 
New  York,  G.  P.  Putman's  Sons,  1889. 

Stull,  Wm.  The  Food  Crisis  and  Americanism.  New 
York,  Macmillan,  1919. 

Van  Hise,  C.  R.  Conservation  and  Regulation  in  the 
United  States  during  the  World  War.  Washington, 
Government  Printing  Office,  1917. 

Wallace,  H.  A.  Agricultural  Prices,  Des  Moines,  la., 
Wallace  Publ.  Co.,  1920. 

Wilkinson,  H.  L.  State  Regulation  of  Prices  in  Austra- 
lia. Melbourne,  Melville  &  Mullen,  1917. 

Willoughby,  W.  F.  Government  Organization  in  War 
Time  and  After.  New  York,  D.  Appleton  &  Co., 
1919. 

The  World's  Food.  The  Annals  of  the  American  Aca- 
demy. Nov.  1917,  Vol.  64. 

Selected  Publications  of  the  Food  Administration. 
Bulletin  No.  1,  Food  Administration;  No  6,  Creation  of 
United  States  Food  Administration;  Plans  for  wheat, 
flour  and  bread  control;  No.  8,  Commodity  licensing;  No. 
15,  Food  control  a  war  measure;  Bulletin  for  the  clergy ; 
Bulletins  for  Agricultural  Speaker  Service  (Nos.  1  to 
24)  ;  Fair  prices  October  1918,  How  the  retailer  can  help 


138  Bibliography. 

the  United  States  Food  Administration,  1918;  Plan  of 
wheat  and  flour  control  for  1918;  Press  releases;  Pro- 
clamations and  executive  orders  by  the  President,  Nov. 
1918;  United  States  Food  Administration,  laws  and 
by  Commerce  Clearing  House,  New 


Publications  of  the  War  Industries  Board. 

A  comparison  of  prices  during  the  civil  war  and  pre- 
sent war,  1918  ;  Government  Control  over  prices,  Garrett, 
P.  W.  Bull.  No.  3,  1920  ;  Fluctuations  of  controlled  and 
uncontrolled  prices,  Bull.  No.  10,  1918.  History  of 
Prices  during  the  war,  Mitchell,  W.  S.  Bull.  No.  1,  1919  ; 
International  Price  Comparisons,  Mitchell,  W.  S.  Bull. 
No.  2;  Official  Bulletin,  (from  May  10,  1916  to  March 
31,  1919). 

PERIODICALS. 

The  following  list  of  periodicals  contain  useful 
articles:  American  Economic  Review,  Quarterly  Journal 
of  Political  Science  ;  Annals  of  American  Academy,  Econ- 
omic World,  Commercial  and  Financial  Chronicle  ;  Atlan- 
tic Monthly,  Outlook,  American  Review  of  Reviews. 

The  following  articles  may  be  consulted  :  Anderson,  B. 
M.  Prospect  of  success  for  government  price-fixing  in  the 
United  States.  Econ.  World,  Jan.  5,  1918,  N.  S.  Vol.  15; 
II;  also  Value  and  price  theory  and  price-fixing.  Ameri- 
can Econ.  Rev.,  March,  1918,  Vol.  8  :  Sup.  239-56.  Ball- 
antine,  A.  A.  Prices  according  to  law,  Atlantic  Monthly, 
Nov.  1915,  Vol.  116  ;  668-77  ;  Carver,  A.  B.  Possibili- 
ties of  price-fixing  in  time  of  peace.  Amer.  EC.  Rev. 
March,  1919,  Vol.  9;  Sub.  246-51;  Davis,  J.  E.  Price  con- 
trol, Annals  of  Amer.  Ac.  ;  Nov.  1917,  Vol.  74  :  288-93  ; 
Gephart,  W.  T.  Provisions  of  the  Food  act  made  per- 
manent, Amer.  EC.  Rev.  March,  1919,  Vol.  9  ;  Sup.  61-78  ; 
Gray,  L.  C.  Price-fixing  policies  of  the  Food  Administra- 
tion, Ibid.  252-71  ;  Haney,  L.  H.  Price-Fixing  in  a  com- 
petitive industry,  Ibid.,  47-56;  Lubin,  D.  Food  Control 
and  Democracy,  Atlantic  Monthly,  1917,  Vol.  120,  260- 
69  ;  Seligman,  E.  R.  Government  price  regulation.  Amer- 
ican R.  of  R's,  Sept.  1917,  Vol.  56:  289-92. 


VITA. 

Joseph  Charles  Hartley  was  born  in  Lawrence,  Massa- 
chusetts, May  23,  1893.  He  received  his  elementary 
education  in  the  public  schools  and  attended  for  two 
years  the  Lawrence  High  School.  He  entered  St.  Rita's 
Hall,  Villanova,  Pennsylvania,  September,  1910.  He 
received  the  A.B.  degree  in  1916,  and  the  M.A.  degree  in 
1919  from  Villanova  College.  He  was  raised  to  the 
priesthood  as  a  member  of  the  Order  of  St.  Augustine, 
in  June  1919.  The  following  September  he  entered  the 
Catholic  University  of  America  where  he  followed 
courses  in  Economics  under  Frank  O'Hara,  Ph.D.  and 
Rev.  John  A.  Ryan,  D.D.,  in  Sociology  under  Rev. 
William  J.  Kerby,  S.T.L.  and  in  English  under  Patrick 
J.  Lennox,  Litt.D. 

He  is  particularly  indebted  to  Dr.  Frank  O'Hara,  his 
major  professor,  for  the  valuable  assistance  rendered  in 
the  preparation  of  this  dissertation. 


139 


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